Applying for such funding takes time and knowledge to understand which options are suitable and what conditions they come with.
Sources of funding can be grouped into four broad categories: self-funding, traditional loans from banks and angel investors, government funding and crowd funding.
There will be multiple conditions attached to any funding but any investment will usually be either equity-based or debt-based. The organisation lending you the money will either want a share of your company in return for the cash injection (equity), or you will be expected to repay a loan (debt).
An equity investment, as well as taking a proportion of your company in return for the initial injection of money may also offer the investor's time or access to their personal network of contacts. Andy Bechtolsheim - a Californian-based angel investor - invested $100,000 in August 1998 in Google. By March 2010, this investment was worth approximately $1.7 billion.
A debt-based loan doesn't require you to give up any of your company, but you must have some way to repay the loan over time. This usually means having regular money coming into the business to pay back the loan. And any loan from a bank or similar organisation will attract interest.
The main attraction of an equity investment is that you don't have to repay any money over time. If the business is a success, the investor sees a return on their investment and so they have an incentive to help the business achieve its goals. A debt-based loan won't take some of your business in return, but the lender doesn't have the same kind of incentive to help the business. They certainly wouldn't want the business to fail, but a debt-based lender is unlikely to give much on-going assistance after the loan has been extended.
A self-funded loan is the easiest loan to get; it's your own money. However, it's important to make sure you don't take too much money out of your personal savings as you still have to pay personal bills and pay your own living expenses. If you give yourself six months to get the business to the stage where it can sustain you, it's a good rule of thumb to retain six months of your previous salary as savings. You can then use whatever you have left over as funding. During your six month launch period you can effectively draw a salary while building the business to sustain you after the initial six months have passed.
Traditional sources of funding can be gained through organisations such as banks or angel investors. Banks at the moment are lending mainly to established businesses. Getting a bank to extend a loan to a business with a great idea, but no financial history, is going to be an uphill battle.
An angel investor will want a share of your business and you are going to have to invest quite some time in convincing the angel that your business is worth investing in. Such convincing will require you to have many conversations about your business and you will have to write a business plan. A number of UK websites have formalised the process of contacting an angel investor, e.g,
. Such websites require you to divulge your idea on a public forum, which may not be something that you want to do. www.angelsden.com
The Scottish, UK and the European governments all want to see businesses be successful as businesses employ people, pay taxes and help to drive growth. There are thousands of grants for business available and they are usually grouped into European grants, UK and Scottish government grants, and local grants.
When applying for any government grant you must ensure that your idea and your business meets the funding eligibility criteria. If your business is in the area of commercial landscape gardening, there is no point in applying to a grant whose remit is for funding arts projects. Always contact the people in charge of the fund to establish a personal relationship and to get up-to-date answers to your questions, as funding criteria do change and web-based data can be out-of-date. You will also learn about up-coming grants and awards.
For Scottish companies, a good place to start is the Scottish Executive. Visit their website at
Grants are also available locally and the UK-wide Business Link has a
and search for 'business funding'. For UK and European grants, you can start your research here: home.scotland.gov.uk/home . www.startups.co.uk/grants-where-to-get-them.html where you can search for grants by business sector or by business location.
As reported in my Grants and Support Directory , Crowdfunding is another potential source of business funding. And such funding is becoming mainstream. One equity-based crowdfunder, last blog entry , has been approved by the UK's financial regulator, the Financial Services Authority.
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