Raise £50,000 in six months

For anyone looking to start their own business, funding is an essential factor that can make the difference between success and failure. £50,000 is an average sum that you may need to raise and here we’ve put some ideas for getting the money over a period of six months.

Plundering your savings

Not everybody has savings but if you do, they are a good place to start. Make sure any existing savings are in the highest interest account you can find so that you are getting the best return. Then, as you gather further funding you can add it to the account to generate interest.

If you don’t have savings yet, now is a good time to start. Your timeline for starting your business may be six months to a year anyway, so if you start putting money away now you’ll have at least a starting point from which to raise more cash. Starting a business is about sacrifice and so you should cut down your lifestyle as far as possible and save the cash – you’ll be glad you did.

Borrowing from friends and family

While it is certainly sound advice in many instances to follow the old proverb "never a borrower nor a lender be", obtaining funds from friends or family members can be a good way of generating cash to start a business.

While Business Link notes the existence of a number of pitfalls associated with borrowing from friends and family; on the positive side, such borrowing arrangements can often be made on more attractive terms than might otherwise be available from a more formal source of funding.
For example, it may be possible to borrow either without any form of security against the loan and it may also be possible to borrow at either a lower rate of interest, or even interest-free. Repayments may also be possible over an extended period of time and a detailed business plan may not be necessary.

It is best to keep any arrangement formal, however, and to give your benefactor as much financial information as possible upfront. You will be responsible for their money and as such it is in everyone’s interest to manage your money effectively.

There are some obvious drawbacks to getting funding in this way and it is worth bearing in mind that if things turn sour, valuable relationships can be damaged. "There is a risk that your investors may offer you more than they can afford to lose, or that they will demand their money back at a time which suits them but not your business," warns Business Link. "They may also want to get involved in running the business, which may not be appropriate."

Renting or leasing assets

Another way to raise finance could be for a business to either rent out or lease an asset and it may even be possible to do this in a way that is actually tax efficient. Business Link advises that this process can even go as far as reducing an overall tax bill.

Following such a strategy offers a number of advantages, as although the asset does not become the legal property of the company, a small business does not bear the risk of asset devaluation and upgrades can often be completed at a very reasonable rate. It may also be possible to obtain tax relief on any borrowing for the purpose of purchasing an asset.

If you don't yet have business assets, look at possessions of your own you can sell. If you really believe in your business idea, you should be prepared to make certain sacrifices to fund it, even if that means selling your car or even items of furniture.  Every pound counts and you can always buy new things when your business starts making a profit!

Business loans and overdrafts

Business loans have always been difficult for start-ups to obtain, and under the credit crunch it is now virtually impossible.

To obtain a loan you need some kind of security or proof that you’ll be able to meet the repayments, two things which new businesses are unlikely to have. In actual fact this is probably a blessing as it helps to prevent start-ups from biting off more than they can chew from the outset.

Once the business is set up, an overdraft can usually be arranged, although it should only be taken out as part of a tightly controlled cashflow plan.

Special start-up funding

There are a number of grants and special funds for start-ups although applying for them can be complicated. Business Link carries a comprehensive guide.

You could also consider finding an investor who could give you the capital you need in exchange for owning a percentage of the company. www.angelsden.co.uk is one of many websites where you can introduce your business idea to potential investors.

If you are determined, it is possible to raise a sizeable amount of funding in a relatively short period of time. What is most important is that you don’t borrow more than necessary and you have a plan to pay back any loans.

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