Starting a business venture without accruing debt is not only possible, but also a wise first step. Using strategies such as skill swapping or sponsorship you can significantly offset costs whilst forming some great business relationships. We understand that borrowing money is sometimes unavoidable, so we’ll discuss alternative funding options like grants, crowdfunding, and angel investors.
Let’s get started on transforming your business idea into reality, with some smart funding strategies.
Cost-Free Collaboration
Starting a business with minimal borrowing not only keeps debt low but also encourages creative approaches to accessing resources. Exploring skill swapping, sponsorship, and mutually beneficial partnerships can provide significant initial support without the burden of loans.
Skill Swapping: You can use your own skills in exchange for the services you need. For example, a web developer might build a website for a marketing expert in return for a comprehensive marketing plan. This not only conserves cash but also starts a supportive likeminded community.
Sponsorship: Gaining sponsorship can be a powerful way to fund your business while creating promotional opportunities for the sponsor. For instance, a local sports apparel startup might offer exclusive branding rights to a regional sports drink company during events or in promotional materials, providing the startup with essential funding or products in exchange for targeted exposure.
Mutually Beneficial Relationships: Establishing relationships that benefit all parties involved can significantly reduce costs. An example could be operating from a community space free of charge, in exchange for providing free workshops or services that drive foot traffic to the area, benefiting other local businesses.
By prioritising these strategies, new businesses can minimise their initial financial outlay while building a strong foundation for future growth. These methods not only reduce your risk but also enhance community and professional networks, vital for long-term success.
While skill swapping, sponsorships, and mutually beneficial partnerships can significantly reduce the need for initial capital, many businesses will still require some form of financial investment to cover various startup costs and operational expenses. Here are some alternative funding options to consider when additional finance is necessary:
- Grants
- Loans
- Investors
- Crowd funding
- Taking a business partner
Grants
Grants provide finance to allow a business to undertake a specific project. Projects may involve the initial start-up of a business, developing a new product, investigating a market, or buying capital equipment. Each grant will offer funding for a specific purpose.
Usually, a grant is a one-off payment and covers a percentage of the costs and the business will need to provide the rest. However, the business is not expected to repay the grant.
Start contacting your local authorities, enterprise agencies and Growth hubs to find out what may be available for your business.
Here’s a great source for looking for grants available at .gov.uk
https://www.gov.uk/business-finance-support
Loans
You might qualify for a government-backed Start Up Loan of £500 to £25,000 to start or grow your business.
Unlike a business loan, this is an unsecured personal loan and will be assessed on the applicant’s credit worthiness.
You’ll get free support and guidance to help write your business plan, and successful applicants get up to 12 months of free mentoring.
https://www.gov.uk/apply-start-up-loan
https://www.startuploans.co.uk/
Another very useful resource
https://www.gov.uk/business-finance-support
If you are from Wales, Southwest or Yorkshire and you have failed to secure funding from traditional sources such as your bank or the government start up loan you can approach the charity we provide funding to. If your idea is good and you show promise, you have a great chance at securing funding, even if you have a low credit score and a business plan that needs work.
https://purpleshoots.org/loans/
Responsible Finance represents providers of fair, affordable loans in the UK.
Kaleidoscope Investments provides finance for disabled people who have a strong business idea or are already running a business with high growth potential.
https://www.kaleidoscope.group/
Fredericks Foundation is a responsible finance provider that offers loans to startups and small firms in the social or charitable sectors that are unable to secure finance.
Investors
Many startups and small business owners turn to business angel investors.
Business angels invest their own money into a private company in return for a share of its ownership (instead of loan repayment) and therefore is not an option for sole traders.
There are many ways to go about finding an angel:
- The UK Business Angels Association (UKBAA) has a directory of business angel organisations that can help match a small business with an angel.
- There are events where business owners can meet potential angel investors.
- Business advisers may have contacts who might be interested in investing in a small business.
- Look for investors on social media e.g. LinkedIn
Before deciding whether to use a particular business angel, it is essential to check that they have self-certified.
An alternative to an individual business angel is to raise funds through a venture capital company however, these companies will usually not invest in your business until it is established in the market and can demonstrate a high growth potential. The British Private Equity & Venture Capital Association (BVCA) provides help on all aspects of private equity and venture capital funding.
Crowdfunding
Crowdfunding is a way to finance business by collecting money from a number of people via online platforms. The platforms take a fee for this service. It can be a fast way to raise your funds and provide valuable marketing and research opportunities. If you have a unique business idea, it’s a very good idea to protect it before announcing it on these platforms.
There are a few different models for crowdfunding
- Peer to peer lending means the funded money will be paid back with interest to the crowd.
- Equity crowdfunding is offering a stake in the business to the group of lenders.
- Rewards based crowdfunding provides goods or services in exchange for the investment.
- Profit sharing models means the crowd will receive a share of the profits.
UK business crowdfunding sites and their models
- Crowdcube (equity)
- Kickstarter (rewards)
- Syndicate Room (equity)
- Indiegogo (rewards)
- Crowdfunder (rewards)
- Seedrs (equity)
- Funding Circle (helps find loans at affordable rates)
Find a business partner
Working with a business partner can have a huge number of benefits. It helps make running a business easier and more enjoyable as workloads can be shared.
Good business partners bring additional skills that you may lack. Having a business partner to bounce around ideas with and who shares your passion and vision for the business will help your startup succeed.
However, while finding the right business partner can fuel your business’s growth, the wrong person can be a car crash for your business.
Questions to ask & consider
Is there a personality clash?
Are they willing to put in maximum effort?
Are they willing to be in every part of the business or just some?
Why do they want to be involved?
How much experience do they have?
What would you do if one of you leaves the business or the partnership doesn’t work out?
The journey to securing the right financial support is as unique as your business idea itself.
Ready to take the next step? Dive deeper into the world of alternative financing by connecting with local business hubs and exploring online resources.
Begin by reviewing your current network and resources. Identify potential partners for skill swaps or sponsorship opportunities and reach out to initiate discussions.
Duport set out a 28 days start up course email enquiries@duport.co.uk to apply to access the course.
