Step #13 of my Top 20 Tips for Small Business Start Ups is the first question you might be asking yourself as you consider becoming self-employed: "Where do I get the money?" Whether you need a loan to get started or want to find out what grants may be available, there's more help out there than most people realise, and a few traps too.
First, a reality check: lots of businesses start with very little cash. Personally I put a few hundred quid from my personal account into my business account and off I went from there. This is quite typical. But some businesses will need bigger outlay so may be looking for external investment or borrowing. If you've done the work in Steps #8 and #12, you may find you need less than you thought. Only borrow what you genuinely need.
1: Work out how much you need
Go back to your business plan and cash flow forecast. Add up:
• your one-off start-up costs
• the cash you need to cover the first few months while sales build
• a buffer for the unexpected
That total is your starting point. Without it, you can't tell whether a funding offer is a good deal.
2: Know the main options
Your own money. Your own personal savings are the simplest source. No interest, no application forms. The downside is that you're risking your own cash, so only use what you can afford to lose.
Friends and family. Often the quickest route, but also the one most likely to affect relationships. If you go down this path, agree the terms clearly and write them down, whether it's a gift, a loan or a share of the business.
Start Up Loans. This is government-backed funding, delivered as personal loans for people starting or growing a business in the UK. According to the Start Up Loans Company, successful applicants also receive 12 months of free one-to-one mentoring. You can apply through GOV.UK. You'll need a business plan, cash flow forecast and personal survival budget (which you should have by now if you’ve been following my steps).
Grants and local schemes. Grants don't need to be repaid, but they tend to be competitive, specific and often local. GOV.UK has a Finance and support for your business finder listing 131 schemes, which you can filter by type of support (grants, loans, advice and more), business stage (including "not yet trading"), industry and region. Some are run by local councils. For example, The King's Trust helps young people aged 18 to 30 who want to start a business.
Bank and other loans. Traditional lenders will want to see a solid business plan and forecasts. The British Business Bank's Finance Finder helps you research which types of finance might suit you, and its guidance articles explain how the different types work.
3: Check the real cost
Before saying yes to anything, ask:
1. What's the total I'll repay? Not just the interest rate, but all fees.
2. What if things go wrong? Many start-up loans are personal, so you're responsible for repaying them even if the business doesn't work out. Some lenders ask for personal guarantees.
3. Can my cash flow handle the repayments? Put them in your forecast and check the low points.
4. Does it come with strings? Grants often have conditions about how you spend the money and what you need to report.
5. Is it right for the stage I'm at? There's no shame in starting small and funding growth later, once you've proved your idea works.
Beware of scams
Sadly, people starting businesses are targets for fraudsters. Warning signs include being asked to pay a fee upfront for a "guaranteed" loan or grant, unsolicited offers and pressure to decide quickly. The British Business Bank has a page on common scams, and you can check whether a financial firm is authorised on the Financial Conduct Authority register. If in doubt, stop and ask someone you trust.
Get free advice before you borrow
Talking to someone independent is a smart move. The ICAEW's Business Advice Service offers a free initial consultation with a regulated accountant. In England, the Business Support Service on 0800 998 1098 and your local growth hub (via GOV.UK) can point you towards free advice and financial help. Scotland, Wales and Northern Ireland have their own helplines, also listed there.
IF you need funding, what to do next..
Remember, you don't have to do everything today!
• ☐ Add up how much you actually need, using your cash flow forecast
• ☐ Search GOV.UK's finder for schemes that fit your stage and area
• ☐ Look at the Start Up Loans eligibility and templates
• ☐ Write down the total cost of any option you're considering
• ☐ Book a free chat with an adviser before you sign anything
Want to talk through your options?
I'm not a financial adviser, so I can't tell you what to borrow. But I can help you work out how your plans and marketing fit together. Book a call with me here.
Next up in the series: Step #14, Where to Base Your Business. Home, premises or somewhere in between.
