Entrepreneurs looking for funding for their business start-ups in the UK have numerous options open to them, however some of these options pose more risks than benefits if the business turns out to be unsuccessful. Whist defaulting on bank loans could cost you your business, if you borrow money off of friends or family then you jeopardise much more and could cause a rift between you and your loved ones. Therefore it is clear that entrepreneurs when looking for funding need to be sure what they are getting themselves in for and be sure that they know what the risks are.
Borrowing money from friends and family to start a business can be a great way to get a business off the ground as typically friends and family require less return on their investment and in certain circumstances will invest in a person for no return other than the pleasure of seeing that person succeed. This type of funding is sometimes called FFF funding, which stands for Friends, Family and Fools! However this form of funding is obviously not open to everyone as not everybody can find friends or family willing to invest their money into a new business.
When looking for business funding it can also be temping to fund your business on your credit card or via a loan, with the belief that your business will be so successful that you will be able to pay off this loan very quickly. Whilst there are hundreds if not thousands of stories of how entrepreneurs have had great business success this way, the stories of the many more people who fail and rack up huge debts aren’t so readily heard. The main thing to remember with credit cards is that the interest repayment rates are typically very high so it is never recommended to fund your business on a credit card.
Entrepreneurs looking for funding from the UK banking sector can end up being disappointed when the bank turns them down for the loan. Whilst you need to have a watertight business plan to present to the bank if you want a loan from them, typically banks only want to invest in businesses that they are already established - and in many cases this means lending money to entrepreneurs who have a successful track record, which is of no help to the new budding entrepreneur.
Grants from the British government may also be available to the entrepreneur, but there are usually ‘strings’ attached to this form of investment and governmental grants tend to focus on businesses that tie in with various government policies, such as eco incentives, charity, or community business projects. If an entrepreneur is looking to operate in these kinds of sectors in the UK then grants may be the solution they are looking for.
In many cases entrepreneurs look towards outside investment from private investors or angel investors who can help support a new business by providing business capital for that business. Angel investors are typically silent business partners who look at a business in terms of the money that they can make out of it. As with banks, entrepreneurs need a strong business plan, however in many cases angel investors are much more likely to take a measured risk, can offer different levels of funding and are typically more flexible than some of the other traditional financial providers.