Finance · 18 October 2018

6 business funding options to get your startup up and running

Alternative lenders are transforming the financial landscape for startup businesses

Donna Torres, director of small business at Xero, helps startup founders understand the different business funding options available for new companies.

Fundraising is essential for getting small businesses off the ground. If you’re just starting out, it can also be a huge challenge. Plan where to source money from in order to fund your business and have a list of financial goals in order to make it a success.

According to the Office for National Statistics, six in 10 businesses won’t see their fifth birthday,  and research from Xero shows that of those who failed, over half (65%) blamed financial issues such as poor access to capital as the reason why.

While banks are usually the first port of call to get hold of capital, they aren’t the only solution.. Nowadays, there are more options to help small businesses, including alternative lenders such as iwoca or MarketInvoice. Open Banking is also a great catalyst for this transformation.

Here are some of the ways small businesses can get hold of that all-important cash:

Business funding

Not all businesses can get every type of finance. For starters, you can’t sell a stake in your business if you’re a sole trader or a partnership. And you can’t issue share documents unless you’re a corporation. The idea at the core of your business will also affect your business funding options. For example, traditional lenders like banks don’t tend go for outside-the-box ideas.

There are lots of business funding options, but they fall into these main categories:

  • Debt (lending)  – Where you borrow money and pay it back, generally with interest
  • Equity – Where you get cash by selling a part of your business to an investor
  • Presales – Where customers pay before you’ve created the products or services they’re buying
  1. Alternative lenders

Alternative lenders are transforming the financial landscape for the better. By using new data sets and developing technology, there are now many more options to help small businesses, including Open Banking.

MarketInvoiceiwoca and Satago can analyse your data to determine the risks involved, and work out what’s right for you, at the right time. Then you simply need to authorise banks and other licensed firms to access transaction history.

  1. Revenue-based financing

Revenue-based financing (RBF) has grown in popularity in recent years. This fundraising option is perfect for small businesses with a lack of hard assets, looking to grow quickly.

Investors inject cash into a business and in return, future gross revenues will have a percentage taken off and given back. The gross revenue will continue to have deductions made until the initial capital amount has been paid, plus the agreed interest.


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  1. Crowdfunding a business

Crowdfunding is a legitimate way to raise money. It can get you access to all types of business finance, including equity, debt and presales. You can use crowdfunding sites to pitch an idea and ask the community to loan you the startup money.

But be mindful, crowdfunding is like a popularity contest. You need to work hard to get noticed. Don’t just post your pitch and hope for it to catch fire. You’ll need strong marketing and networking plans.

  1. Start-Up Loans

The Start-up Loans Company (a government-owned organisation) offers entrepreneurs money to start their businesses (seed capital) of around £2,500 each. Visit the website and you’ll see that you can borrow up to £25,000 with a fixed interest rate of 6% per annum.

  1. Peer-to-peer lending

Some websites introduce people who have spare cash, to people who need it. You can submit a pitch including how much money you’re looking for and why.

People who lend money through these sites are generally taking bigger risks than banks, and so they expect higher returns. As a result, the interest rates can climb. But that’s not always the case if you have a solid proposal. As a bonus, you don’t typically have to offer security.

  1. Bootstrap

This means funding your business entirely on your own. While not always possible, this is a great option if you can manage it financially. It means you can cut back on as much expenditure as possible.

Successful bootstraps also fund themselves through money coming in, so it’s important to monetise your business as early on as possible and keep on top of your cash flow.

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Donna Torres is the director of small business at Xero UK. Having held previous management positions at a variety of product companies, Donna joined Xero in 2014 and has been part of Xero’s growth from its early stages in the UK. Donna believes that the biggest challenge facing small businesses today is HMRC’s Making Tax Digital for VAT initiative, alongside the impact of late payments on cash flow – both of which Xero is supporting SMBs with through its technology.

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