Trying To Find Funding For Your Business Idea?
Tuesday, November 1, 2011 at 9:42AM I've been thinking about writing this blog post for a couple of weeks. I knew I needed to do a lot of research, and that I did. Although when I reflected on what I was doing I had to stop in my tracks. Here's why.
As anyone who is starting their own business knows, funding in any shape or form is the nightmare that we all come up against. Since the recession no-one has any straight up advice or 'how to' when it comes to getting and investment for your new business. When I attended a 7 day business course provided by CBV (Croydon Business Venture), the one question that kept coming up was 'yeh, but how do I get funding?'. When they brought down the local business advisor from a nearby bank, I almost threw myself at her to shield her from the brainless questions about money that were being asked. Fact is.. THERE IS NO EASY WAY TO GET INVESTMENT.
So let's go through this bit by bit. In theory, these are your options..
1) write a business plan and go to the bank to get a loan
2) find a grant
3) ask your friends and family
4) go to a private investment company
5) pay for it yourself
6) Go on Dragons Den
Let's take a look at these in more detail.
Write a business plan and go to the bank to get a loan
In my opinion, don't even think about this option. Since the recession banks are hardly giving out any money at all. That's not to say it's impossible, but the rates of interest you pay will be higher, you are less likely to be approved and you will have the added pressure of your monthly payments hanging over your head. Regardless of whether your business is growing, failing, stagnant or what, you won't be able to avoid the payments. They will usually be at a set rate which means what is afforable now may not be if your business happens to go over a rocky patch. Worse still, if your business doesn't work and you pack it all in, you are still left making payments for nothing. For me personally, it's too much pressure when you are already going to working your ass off not to be one of the business that 'fail in the first year' as we so often hear about. Add to this that you will need offer some kind of 'security' against the loan, which basically means they will come for your home or posessions if you don't pay up. Obviously that happens with all lending, but when you think about how many businesses fail it all seems a little more risky.
Find a grant
A grant is by far a better idea than bank lending. However, grants are not easy to come by, at all. Usually grants are reserved for the more 'ethic' businesses, such as environmental advances, social enterprises etc. Funding in this capacity has some very strict rules on what can be deemed acceptable, and you will often have to match fund what you are asking for. Grants will usually have some strict conditions that you will need to stick to and will ask for evidence that you have done so. A grant may be right for you if your business offers something like the following
- Skills development
- Anything environmental or helping people be more 'green'
- Innovation, reserach or development
- Social enterprises
- Regeneration of your area
- Providing jobs in an area of high unemployment
... you get the idea. Check out this information from Business Link on Grants and Government funding for more information. I will tell you now I have spent lots of time and stressed out over writing funding applications (not fun, very boring and long winded, often asking for evidence of things that are very hard to quantify) and not been approved. Remember, time is your most valuable asset so if your business doesn't fall into or near one of the categories I have mentioned above then it may be best to try another option.
Ask your friends and family
I sit 50/50 on this one. My first thoughts were that this idea was the best, but after more thinking I'm not so sure. I know that my family are quite business savvy and wouldn't think twice about telling me 'no', and wouldn only invest in my business if they really saw potential, but I guess a lot of other families may find it harder to do so. Many people are very emotionally attached to money and may be up for investing at first, but feel hard done by or pissed off later down the line if they lsoe their investment. It can cause rifts and may lead to resentment. If done properly however, this can be a good prospect. This may sound selfish but you won't have anything against your house or on your credit report, if your investor is understanding they may let you take a small break from payments while you find your feet and the money is available quickly. As I said, it's dangerous territory and each case would have to be judged on it's own merit. Do you feel like your family or friends could be honest with you if they thought your business idea sucked? The last thing you want is someone begrudingly lending you money. Never a good start.
Go to a private investment company
This is becoming more of a popular option. There are plenty of well off people out there looking for stuff to invest in. They are sometimes called 'business angels'. You will need a strong business plan and your business will need to be scaleable, meaning it will need to grow enough in the future to bring in a lot of money. Private investors are usually not that excited about funding a start up project that they will then own a percentage in if it is going to stay as one small shop or office. That want to own a share of something that can be rolled out accross the city, country, or even worldwide. They will want a business that can grow fast, so that they can sell their share within a few years. If you are going to try a business angel, be prepared to invest your own money into the project first. An investor is not going to feel confident in your business idea if you haven't even invested yourself. This is basically Dragons Den away from the TV. So think about the questions that get asked there, and when the dragons don't invest, why is that? Here's a bit more info on business angels from Bytestart.
Pay for it yourself
The short of it, in my opinion, is that if you can't afford to save up the money to start the business on your own then I would really look at what it is that you are doing.
WAIT! Before you all jump on me with your 'yeah buts' I know that there are some businesses that need start up capital. Maybe you are making clothes, need equipment, training etc... I know. My point is, start small. Invest what you can into buying enough equipment, materials or whetever to get started and slowly roll out your product or service. If it's good people will pay for it. Then grow a little bit more, then more, then if you get to the point that you really need extra funding to continue you will have enough evidence of your business to be able to get funded in a heartbeat. You will also know you have a product that works. You will have done your market research yourself. I know people talk on and on about business plans but I honestly believe that you should start without a business plan, small, not even small - tiny, and just go out there and DO IT. You will learn more from starting small and working without a business plan than you would by sitting around for hours doing research and even more research and speculating sales numbers and figures of something you have no idea of! I have experienced so many of my business ideas flop (that I so strongly believed in at the time and was totally convinced could work) that I thank the universe I didn't end up owing anyone money. I could be paying off business ideas from years back now if I hadn't been careful.
Go On Dragons Den
This was a joke. ok, it's an option in some regards but....yeah... just remember it's a tv show!
TO SUMMARISE
If you can't fund it yourself, don't do it. There are exceptions to this (if your business is already up and running and you need more investment) but this blog is about start up business. Please, be modest, have humility. Don't go out there asking for tens of thousands of pounds to put into an idea that might not work. Admit that there is a chance you may fail and prepare yourself so that you can learn and grow in the capacity that your money allows. Remember that we are in a recession. Dun dun dun!
I'm sorry if you came here hoping to find answers to your funding problems. Hopefully some of you will have. I'm here to give my opinion and that's why you're here right?! I couldn't just sit here spouting advice and ways of getting funding that I don't believe in!
Have you ever acquired investment for your business? How did you do it? Did it work out? Please share your stories in the comments section so that we can all help one another.
Sarah x
Reader Comments (4)
Don't borrow money from friends or family. Ever. Just don't.
Kickstarter (if they have it in the U.K.) is a good way to fund new small scale projects.
www.kickstarter.com
I can see why people say not to borrow from friends or family but I've never had any problems. I guess it all depends on the people involved. Thanks for the kickstart idea, is that a crowdfunding website? Think I have heard about ti before..
Kickstarter is indeed a crowdfunding website. If you google "kickstarter success stories" or check out http://www.kickstarter.com/discover or http://www.kickstarter.com/discover/most-funded you will find lots of inspiring examples of projects (films, music, tech products) that have been funded using their model.
http://www.fastcodesign.com/1663858/kickstarters-biggest-success-ever-nano-wristbands-raise-1m-jump-to-apple-store
http://www.spinner.com/2010/07/12/jenny-owen-youngs-new-album-fundraiser/
http://www.pastemagazine.com/articles/2010/10/blue-like-jazz-movie-saved-by-grassroots-campaign.html