As business advisers and accountants in Kent we’re constantly helping businesses with financing issues. Money is a powerful tool that allows you to manifest your vision and take your business to new heights, however a lot of business owners lack the knowledge of where to go or how to apply for funding at a reasonable rate…which may not always be a bank loan.
Instead of letting a lack of funds prevent you from growing your business, consider these tips on how to apply for funding, from loans to crowdfunding and everything in between.
There are so many types of loans available, each of which caters to different financial situations and backgrounds. If you want to pay for your business yourself, but don’t have all the money you need to get started, applying for a loan is the way to go. While types of loans vary from private bank loans to government loans, there a few basic qualities common to all loans:
- A loan is an amount of money that you borrow and repay over an agreed-upon period of time.
- There is almost always a fee attached, which comes in the form of interest.
- Interest payments depend on how long you have to repay the loan, how much money you are borrowing, whether your loan is secured (by offering some sort of capital if you’re not able to pay back the loan), who is providing you with the loan, etc.
- Interest rates can be fixed or variable
Loans are ideal for offsetting start-up costs associated with your business and paying for fundamental assets that will allow you to move forward and grow your company. Applying for a loan to pay for ongoing expenses, however, is not a sustainable plan, as you may find it difficult to pay off a loan that keeps increasing.
Likely the greatest advantage of applying for a loan is the freedom associated with it. Since you are not selling a share of your company or promising to give the lender a percentage of your profits, you retain more control of your business and the freedom to make decisions without third-party involvement.
How: Assess and organise your personal finances, as well as your projected immediate and long-term business expenses. Research loan options at the bank you’ll be opening your business account with, and research government loan options for comparison. Consider if making payments with interest and maintaining full ownership of your business is the path that’s right for you.
The application process will differ depending on the lender and type of loan you choose, but once you’ve developed a sense of your financial situation and goals, you’ll be prepared to pursue the application process associated.
Crowdfunding is a more creative and collaborative way to gain funding. While you wouldn’t apply for crowdfunding, necessarily, you are seeking funds from another party – generally a large group of unassociated people – and trying to convince them of why they should fund your business.
The great advantage of crowdfunding is that there are most often little to no expectations on behalf of the groups who are funding you, beyond the fact that they want your business to succeed. Perhaps you are offering them your future product or service in exchange for their funds, as is often the case in Kickstarter campaigns. Meanwhile, you are raising awareness of your business and building a network of support.
Do note however, that for many crowdfunding platforms, like Kickstarter, you must raise the amount you set out to raise or forfeit your funds entirely. Sites like Indiegogo don’t operate this way, but instead retain a larger percentage of your profits when you’re campaign is through.
How: Build a network of support before launching a crowdfunding campaign. You’ll have much more success with crowdfunding if you already have a group of supporters to turn to who will help you spread your message and your campaign. Create lots of free content for potential donors, so they feel compelled to contribute to your cause.
After all, a campaign site with little more to offer than a fresh idea is not going to convince people to support you. Back up your vision with a compelling mission, videos, images, and show people what you’ve already done with the resources you have.
A little research and financial planning will help you find the right funding for your venture. Assess your goals, timeline and present resources to create a blend of funding that suits your needs.