Funding options
You've got a business idea
Funding options that would work best when you’ve got a business idea:
- using your own money (also known as bootstrapping)
- asset finance.
When you’ve got a great idea but not much else, you’ll need to rely on your own money or investment from friends and family. Most new businesses need from $50,000 to $100,000 to get off the ground.
It’s difficult for those new to business to get a loan. If you do, you’ll be asked to use personal assets as security – for example, your house. Even unsecured loans are hard to get because lenders will be looking at your cash flow, which you might not have.
Testing the market
Funding options that would work best when you are testing the market:
- peer-to-peer lending
- reward-based crowdfunding
- family and friends.
Don’t use crowdfunding if you’re not fully committed to following through with your project.
You must not mislead or deceive prospective investors. By law you must fulfil promises made to investors if you reach your fundraising target and receive money from those investors.
Launching your business
Funding options that would work best when you are launching your business:
- cash flow loans
- credit cards
- angel investors.
The best fit for you partly depends on your industry. Banks might not lend to businesses without plenty of assets. Some lenders look at cash flow, which is useful for businesses not yet making a profit but with high turnover.
Many banks and other lenders offer various incentives and fee structures for small businesses.
18 months or more in business
Funding options that would work best when you’ve been in business for 18 months or more:
- secured loans
- lines of credit
- equity crowdfunding
- funding from profits.
If you’ve been in business for 18 months or more, it’s easier to raise capital as you’ll now have:
- a proven business model
- income
- financial statements showing your performance over time.
Even if your statements are in the negative, investors and lenders will be interested if you can show how your business will make money. It’s worth also thinking about asset loans.
Three to five years in business
Funding options that would work best when you’ve been in business for between 3 and 5 years:
- venture capitalists
- convertible notes
- trade finance
- secured loans
- funding from profits.
You can look into these types of fundings when you’re settled in your business and ready to grow. If you’ve got loans secured with personal assets, switch to using business assets as security.
Impact on your personal finances
Whichever funding type you choose, you might have to use your own money to cover the costs of starting up.
Common examples are:
- personal savings
- personal loan
- using your home, car or another personal asset to guarantee a loan.
There are some benefits of using personal finances for your business:
- You won’t give up any control of your business, as you would if you got investors involved.
- If you seek investors later on, they are much more likely to back you if you can prove you’ve put your own money into the business.
Learn more about