Eight ways to raise money for a new business

Esther Shaw / 27 February 2015

Starting a new business can be extremely exciting, but can also be a very daunting prospect in terms of the time, effort and money needed before you can start reaping any rewards.

At the outset, one of the key things you must do is decide how to fund the start-up costs required to get your venture off the ground.

Here’s our guide to some of the different avenues you could consider...

1. Use your own savings

If you have a nest egg squirreled away, this may be the simplest way of funding your business, as you are not racking up any debt – and are only accountable to yourself.

The risk, however, is that if your start-up is not a success, you may end up with no savings to fall back on.

2. Talk to your bank

One of the most common ways in which people raise capital is by approaching their bank; banks may be willing to offer business loans specifically to help people fund their start-up costs.

A decent lump sum can be a real help initially, but bear in mind that you will need to provide realistic cash-flow forecasts, and be able to prove that you have a plan for paying the loan back – with interest.

Read our tips for applying for business loans.

3. Get family and friends involved

Your family and friends are likely to want to help you – and may even want a stake in your potentially lucrative business for themselves.

But be aware that borrowing from loved ones can put a strain on relationships, so make sure you they are only loaning money that they can afford to lose. Also insist on putting any lending agreement in writing.

4. Business angels

Angel investors are usually entrepreneurs who have made their own fortune, but who now want to invest their funds back into start-up businesses.

As well as offering financial support, angels can also provide advice and useful connections.

5. Venture capital

Venture capitalists or “private equity” companies are firms which aim to invest in early stage businesses with high-growth potential – and a strong sense of direction.

6. Crowdfunding

Crowdfunding is still a relatively new way of raising funds for your business, but it is becoming increasingly popular.

It essentially involves a large group of people investing in an idea, using their own personal funds. It is up to the individual how little – or how much – they wish to give you.

Read our guide to crowdfunding.

7. Peer-to-peer

Aside from these options, you could also consider alternative sources of funding, such as “peer-to-peer” lending.

Peer-to-peer involves people loaning money to other individuals without having to go through a bank.

Lenders are everyday people who have money they want to loan in return for a competitive rate of interest.

This could be a helpful option if you find the banks are unwilling to offer a traditional loan to you for your unproven new business which has, as yet, no established credit.

8. Government grants and funding

There are a host of government-backed grants and funding opportunities available for small businesses that can help with initial funding while you develop your business idea – so check out what’s on offer here.

For more information on starting a new venture, visit the Federation of Small Businesses and Better Business Finance.

Read our guide to six things to do when starting up a business.

The opinions expressed are those of the author and are not held by Saga unless specifically stated.

The material is for general information only and does not constitute investment, tax, legal, medical or other form of advice. You should not rely on this information to make (or refrain from making) any decisions. Always obtain independent, professional advice for your own particular situation.