The poor state of the global economy has made it difficult for many people to secure employment. Some people have decided to try out entrepreneurship with the aim of achieving financial freedom. However, they face several challenges, such as lack of capital. Below are some alternative funding sources for startups you can use to build your business.
Entrepreneurs can get business grants from local, international, and national sources. Before applying for a grant, however, you need to check your business’ eligibility. The majority of grants offered in the United Kingdom are set aside for environmental projects, employment and training, as well as research and development.
Peer-to-peer lending (P2P)
This is an online process that allows investors to interact with borrowers. There are 2 types of P2P:
- P2P business lending – The loan is offered to companies.
- P2P consumer lending, where money is offered to individuals.
If you’re operating a fast growing business, you may want to consider venture debt. This financing option involves leveraging company funds to raise capital. It’s often used by businesses that want to achieve certain goals without diluting their equity share.
Some startups use pensions to raise capital. Lenders offering pension-lending don’t require any personal guarantee from the borrower. They offer protection for assets held within the borrower’s pension scheme.
Venture capital finance
Companies that need huge amounts of equity are often advised to consider venture capital finance as an alternative. To use this funding option, you’ll have to offer equity to your investors. In most cases, venture capital investments occur after the first funding round.
Friends and Family
You can borrow money from those close to you. Be sure to hold your end of the bargain to avoid straining your personal relationships with other people. Only borrow an amount you can repay on time.
Invoice discounting and factoring
This is a form of short-term borrowing. It’s often used to improve the cash flow position and working capital of a company. Invoice discounting enables borrowers to use their sales invoices to secure loans. When using the business funding option, you’ll be allowed to borrow amounts equal to a percentage of your sales ledgers. You can also use unpaid sales invoices as collateral.
Alternative funding sources for startups – where to find out more
You can read here about the alternative funding sources we can offer.
Or please get in touch if you’d like to discuss different funding options for your business.