Thousands of companies are formed every month in Britain, and every year more people are looking to take the leap into launching their own start-up. For most of them, the first hurdle is finance. While some start-ups might be able to get going with personal funds or with the help of family and friends, some require much more money than what your immediate circle can provide. This is when investors, loans and grants come in handy – but they all have their own risks and benefits.

Angel Investors

Angel investors are usually people with a high net worth who are willing to invest their money in new ventures. The personal aspect of angel investing means that although they usually provide a little less capital, they might back riskier projects if they like the idea or person behind them, and they can often offer valuable business advice. In general, angels invest in the region of £10,000-£500,000 in a single business, and both Facebook and Uber rose to success with the help of angel investors. The downside is that you are potentially giving away a large amount of your future earnings to the angels that back you. Still, if you are looking for an angel investor, try the UK Business Angel Association or the Angel Investment Network.

Venture capital

Venture capital is a form of investment by financial institutions such as venture capital funds and pension funds, or a collective pool of money from wealthy individuals. One of the benefits of venture capital is that it usually involves large sums of money, but a major downside is that it also involves handing over a large share of your company. In some cases, the founders of a start-up may be left with less than 50% of the shares in their company, which means other people are making the decisions. Another downside is that it can be very difficult to get the attention from venture capital funds, so acquiring the backing you need could take a long time.

Loans and grants

One of the first places most people look for finance is their bank, even though business loans may be difficult to attain. The British Business Bank estimates that around 100,000 business loan applications are rejected every year in the UK, often due to bad credit ratings, inadequate business plans, or a lack of assets like property. Banks want to be assured that if your business fails, they can recover the money. The Government offers some low-interest start-up loans, as well as grants which are often region-specific. It’s worthwhile checking what grants are available to your particular business, even if they are fairly small. Although all loans come with an element of risk, the benefit of is that they are quite easy to manage as long as you can afford the repayments. You also don’t need to worry about giving up a share of your company.

Crowdfunding

Crowdfunding allows start-ups to raise money through crowdfunding platforms such as Crowdcube or Kickstarter, by getting small investments from many individuals known as ‘backers’. Equity-based crowdfunding offers shares in the company in exchange for investment, while reward-based crowdfunding offers perks like products or exclusive events. The benefit is that if your product is appealing enough, you can potentially raise a lot of money without giving away any shares. Everything from new computer games to new types of drones have been created with the help of backers on crowdfunding sites. If you fail to reach your investment target, the funds are returned to the backers and you won’t pay a fee, which makes crowdfunding very low-risk overall. Different websites offer different fees, terms and conditions, so make sure you shop around.

Get advice from Berley

At Berley Chartered Accountants, we’re passionate about helping small businesses and start-ups grow. That’s why we offer tax planning services, business advice and accounting advice for London start-ups. As specialist entrepreneur accountants we understand the challenges you are facing, and will work with you to make sure you know what funding is available for your business, and how to use it wisely.

Call Berley – the London accountants for start-ups – on 020 7636 9094 to arrange a first no-obligation meeting.