Please note that this article is intended for educational purposes only and should not be deemed to be or used as legal, employment, or health & safety advice. For guidance or advice specific to your business, consult with a qualified professional.

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There are many reasons why a business may need to raise money. You could be an ambitious entrepreneur, looking for ways to raise startup capital and make your vision a reality. Perhaps your business is seasonal, and you need additional finance to supplement your income during a lull in custom. Or maybe you’re looking for some funding for capital expenditures that won’t endanger your cash flow.

Let’s take a look at some of the ways you can raise money for your business.

Bank loan

For most, a loan is the most obvious way of raising money for your business, whether it’s looking for a startup loan or just a little extra working capital. However, in an uncertain economic climate, banks have become increasingly risk-averse over the past decade or so.

In order to improve your chances of approval for business funding, it’s a good idea to have a water-tight business plan if you’re pursuing startup funding, or evidence of healthy cash flow if your business is already up and running. Lenders want to know that your operations will be conducive to repaying your debt over the coming years.

They also want to know that your business or personal credit is in good order. Most lenders have an online facility that allows you to check your eligibility for a business loan without it impacting your credit score.

There are numerous different types of business loans. These include:

• Startup loan- This is a larger loan repaid over a longer period of time (usually 1–5 years)

• Working capital loan- This is a loan designed to help a business pay for capital expenditure without paying large upfront costs

• Bridging finance- This is a short-term, high-interest loan designed to tide a business over until it receives more long-term financing

• Invoice financing- This is where a business effectively sells its unpaid invoices for a percentage of their actual worth. It’s potentially useful for a quick cash-flow fix

• Asset-based finance- This is where finance is borrowed to ease cash flow or aid capital investments, and secured against assets that the business owns such as property, equipment inventory and machinery

What do I do if I am turned down for a business loan?

If you are turned down for a business loan, the lender is obliged under The Small and Medium Sized Business (Finance Platforms) Regulations 2015 to refer you to another bank or institution for alternative funding. You can also appeal the decision with the lender.

Square Loans

For existing Square sellers (signup here for a Square account today!), you may be eligble to apply for a small business loan with Square.

With Square Loans, the process of getting a small business loan is simple and fast from start to finish. Where banks require business plans, audited financial statements and pages and pages of paperwork to apply for a loan, Square is different. We assess your payments data and then, if you’re eligible, make a proactive loan offer based on your unique business activity.

Just decide how much you want to borrow up to the offer amount, review your details and accept the terms and conditions. We’ll let you know within a couple of business days if you’re approved (most applications are approved on the spot). The money is then automatically deposited into your linked bank account. You’ll have the money to spend as soon as the next day.

Typical loan offers are £10,000 with a fee of £1,325, or 18.45% APR.

Learn more about Square Loans >

Government startup loan

If your proposed startup’s needs are fairly modest, you may be able to apply for a government loan. This ranges from £500 to £25,000 with a comparatively low interest rate of 6%.

This loan is aimed at startups which are less than 24 months old. As well as financing, it also provides new entrepreneurs with mentoring to help their nascent businesses to thrive and grow during their perilous early years.

Crowdfunding

Sites like Kickstarter and GoFundMe have proven effective ways of getting creative or unorthodox businesses off the ground. Crowdfunding can be hugely advantageous for new startups as it enables them to raise money while cultivating a following that could form their loyal customer base in the future. It can help companies gauge interest among their target audience for the products or services that they will offer and tweak their offering to be better aligned with what their prospective customers want. What’s more, as investors track your fundraising progress, they can promote your burgeoning brand among their networks.

However, crowdfunding does come with a set of caveats.

It can take a lot of work to generate interest and traction, with legions of other budding businesses trying to gain prospective investors on the same platforms. You need to come up with compelling incentives to get investors to part with their money, and if you do not achieve your funding goal, you will have to return all funds raised to the investors. What’s more, failure to launch may deal terminal damage to your nascent brand.

Friends and family

Borrowing from friends or family may result in terms that are much more advantageous than applying for a bank or government loan. However, consider very carefully the proposal before approaching friends and family.

Confusion as to whether the funding is a gift, a loan or a donation, or ambiguous repayment terms, can lead to conflicts that erode your relationships. It’s best to approach friends and family the same as you would any other investor.

Business angels/outside investors

External investors (commonly known as business angels or angel investors) are always on the lookout for businesses that can help them to grow their investments. However, as experienced venture capitalists, many are at least as risk-averse as banks, and you need to show that you have an infrastructure to generate stable growth as you repay their investment with interest.

These are often seasoned business professionals who have run successful businesses of their own and can often lend you guidance and mentorship in addition to funding. After all, it is in their best interests for you to succeed, and their insights and advice will help you to grow your business while also protecting their investment. These investors are divided into incubators (that help you in the early stages of building your business) and accelerators (to facilitate and accelerate business growth).

There are numerous online networks that help businesses and investors to find one another, although it can be difficult to get and sustain their attention. Strong numbers, steadfast reporting and a strong business plan are very persuasive in helping you to build your case with them.

Government grant

It’s important to remember that venture capital is not your only option. Not all business funding needs to be repaid. Applying for a government grant may enable you to raise money without needing to worry about future repayments and interest impinging on your future profit margins.

A government grant may apply to a business that can either help further scientific causes or generate economic prosperity. Grants can be awarded at a local, national and international level. The UK government website has a searchable database that can help you find grant assistance based on keywords that relate to your business. Alternatively, there are third-party resources that may also help you to find grant assistance.

Useful resources

• If you’re looking for a business angel or investor, the Angel Investment Network is a platform that enables entrepreneurs and investors to find one another

• For startups with modest needs, a government loan may be more advantageous than a bank loan. Take a look at the Government startup loan website

• If you’re looking for business funding that does not need to be paid back, the Government Grants website is a useful resource to help you find applicable grant funding

• The Small and Medium Sized Business (Finance Platforms) Regulations 2015 is essential reading for those applying for business capital from a bank. If your preferred bank or institution turns down your request for a business loan, they are legally obliged to help you find alternative funding

• Online eligibility checkers are a useful way to check whether you will be available for a business loan from a commercial bank without obligation or damage to your credit score. Take a look at this online eligibility checker from alternative business lender Capify for example

• The stronger your business plan, the more persuasive you can make your case to lenders and investors. Check out our advice on how to create a business plan