How to get money to start a business

If you’re a budding entrepreneur you might be asking yourself: “How do I get money to start a business?” Getting your projects and ideas off the ground isn’t easy, and funding can be a major hurdle.  Fortunately, there are lots of options you can consider when working out how to obtain money to start a business. We’ve got you covered.

Many entrepreneurs don’t realise there’s financial help available to them. Deciding which option is the best business funding for your startup depends on several factors, like your professional and personal connections and the sort of business you want to build. Here are eight ways to get investment for a startup.

8 ideas for how to get money to start a business

Find the best way to get funding for a startup that’s right for you and your business:

1. Friends and family

Depending on your personal network, you may be able to get startup funding closer to home… or even in it! The great thing about reaching out to your loved ones is that you can build informal options for startup financing, because there may already be a higher level of trust. 

Things that you could try to benefit from include lower interest rates (or even going interest-free) and longer repayment durations. This can help you get your footing early in your business. But it will probably all depend on the relationship you have with your family and, of course, their own financial circumstances.

It can be awkward to approach your loved ones about money. But it’s important to remember that, if your business is successful, you’re offering them an opportunity rather than begging for a favour. Having this sort of investment can also motivate you to work harder to succeed. 

If you do decide to go down the route of financing a start up business via your friends and family, set out everything that has been agreed in writing and keep a record of it. It can sometimes be the case that terms are agreed very loosely with loved ones, but it can really help to have clarity to avoid confusion later.

2. Angel investors

Angel investors are typically individuals who invest money in your startup or business. They often provide more than funding for business startups, they can also be mentors, advisors and connection-makers. These things are invaluable for new businesses, offering a leg-up over others in your position.

If you want to find an angel investor, a great place to start is at pitching competitions or searching on social media. They’re often busy, so it helps  to know your business plan inside-out. You will also want to pitch your business in the best light, outlining the opportunity you’re presenting. 

An angel investor might give your business a cash injection, but bear in mind that they will likely want a fairly large return for their money and expertise. A typical stake in your company would be around 20%, but depending on how much they offer you, they may ask for anything up to almost half your business. 

Another thing to consider with angel investors is whether they share your ambitions and values, if they have complementary skills to bring to the table, and what sort of benefits they can provide you with in terms of experience and contacts. These things are important to get right, because they will own a significant share of your business. 

3. Crowdfunding

Crowdfunding is a great way of financing a startup business. It works by connecting your business to potential customers before you’re fully up and running, getting them to fund you because they believe in your project. This can be especially successful for artistic and creative businesses like gaming, illustration, design and technology.

If you have a creative project in mind, you can check out crowdfunding platforms like Kickstarter or Indiegogo. By reaching  a massive audience who might be willing to back your ideas, it’s possible to generate huge funding. That’s the power of the crowd!

Generally, you would offer anybody pledging towards your project a reward. This could be early access to content, merchandise or membership benefits. Be super clear with your potential backers about how you will spend the money you raise. And remember, with Kickstarter, if you don’t hit your target you won’t receive anything! 

Other crowdfunding platforms, such as Crowdcube and Seedrs, allow you to make your supporters into shareholders. These platforms might be better for businesses that don’t have physical products (which are popular rewards on Kickstarter and Indiegogo). Shareholders may also invest more money as they can get better potential returns.

4. Startup grants

Grants can be a fantastic option for startup businesses looking for funding.  They don’t need to be repaid and you don’t have to give up any equity in your company. Grants can vary in size and many don’t come with conditions for how you need to spend the money, giving you the freedom to build your business your way.

Grants are normally awarded by the government. Check out what is available from government websites for startup support.  You will also often have to fill in lengthy applications with supporting data to receive government grant funding, so be sure to  check the eligibility criteria.

In addition to government business grants, and depending on what your business is focused on, you might be able to get funding for startups from research and development grants and tax breaks. You will probably have to meet stricter criteria but these can be a great option if your business fits the bill.  

5. Startup loans

If you can’t find business grants that fit your company, or you don’t match any criteria, you can still find startup and small business financing via loans. The government provides a“Start Up Loan”, which can give you between £500 and £25,000 early funding to help you kickstart or grow your business. 

With repayment terms of around 6% per year, for up to five years, the Start Up Loan is well worth a look. As well as the money, you also get help, advice and 12 months’ of mentoring. It is worth mentioning that the Start Up Loan is tied to you personally, so you are liable as an individual to repay it. So it’s a good idea to borrow as little as possible.

6. Peer-to-peer business loans

Peer to peer lending works similarly to crowdfunding. But instead of connecting product makers to potential customers, platforms like Funding Circle, Zopa and RateSetter offer access to private investors who may be willing to provide you with unsecured business loans to help give your new business a boost.

Read more about peer to peer lending, and whether it affects your credit score, in this blog post. 

7. Venture capitalists

Venture capitalists are investors focused on startup businesses with extremely high potential growth. If your business is already established, you have existing funding, and people are excited about your company, this could be the right option for you. 

Similarly to angel investors, they will expect to be very involved in your business and have a notable stake in it. They’ll want to grow quickly to see an early return so your interest in using venture capitalists may depend on your appetite for fast growth and less control. The British Venture Capital Association has a directory for the UK. 

8. SEIS and EIS

If you’re wondering how to get investment for startup projects, you might choose to consider tax-efficient and secure funds that are supported by HMRC. The Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) offer investors tax relief for involvement in your business.

Something to keep in mind

Funding startup businesses can come with a great deal of risk. You might actually want to take out insurance when you get money for start up businesses that you’re involved with. You will often be liable for your business and for anybody who has invested in it. Be sure that your business plan is watertight and get advice and help whenever you can.