Small Business Start-Up Checklist – Financing Your Start-Up

A common barrier that a lot of people feel prevents them from starting their own small business is how to generate enough capital to get things up and running. A large number of SME owners end up working two or more jobs because they cannot afford to give up their previous employment whilst their new business is in its infancy. Although this is a necessary evil, it can only harm the performance of their start-up if they are unable to give it their full attention.  

These are the most common methods of financing a start-up:  

  • Personal Savings – The majority of entrepreneurs finance the bulk of the cost from their own savings. This has the benefit of needing no repayment but also could leave them without any further money to inject into the business
  • Banks – Nearly half of all start-ups take some form of loan from a bank. In recent years, banks have been handing out money very easily but this looks set to change in the current economic climate. Borrowing money is probably best avoided at this time, but if you decide to then think carefully about which bank to choose. A bank will probably expect you to risk some of your own funds before they give you anything. A strong business plan will be crucial in securing a loan
  • Friends and Relatives – Almost a third of start-ups have some contribution from family and friends. This group of people are – for some entrepreneurs – the only people who will have enough faith in you succeeding to actually invest. Their contribution may come in the form of a loan or possibly for some share of ownership. The main disadvantage to this sort of arrangement is that if your business fails it could also damage your personal relationships
  • Individual Investors – There are people who are willing to take a gamble and invest in promising start-ups. About a tenth of new businesses have had contributions from outside investors, usually in exchange for some percentage of ownership. These agreements can sometimes be very flexible depending on the individual and may need only last for a fixed term i.e. until the money is repaid
  • Government Loans – Although hard to get in the UK , it is common practice in many countries for Government’s to provide small business loans and grants to start-ups. This helps nurture the development of industries or can help re-vitalise one that is flagging
  • Venture Capitalist Firms – A very small amount of new start-ups opt to receive financing from venture capitalists. They are unlikely to invest unless they are guaranteed a big return and will be extremely demanding

If you are still unable to generate capital through any of these methods it can be helpful to attend a business school. At the school you will get to know like-minded people and they may be interested in going into business with you. In addition, most schools run business plan competitions that award funding to the best entries. 

For the previous stages of this checklist look here 

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