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How to Fund a Start-up

Gary Green
Gary Green
March 17, 2015

In this article, we'll tell you all about how to fund a start-up, including the SEIS.

Many UK start-up businesses are finding out that there are a plethora of funding options available. As new UK companies begin to trade, they know that modern technology gives them access all over the world for their export start up.

Funding for many start-ups is limited. Compared to the average UK or indeed London salary, new businesses require a lot of cash. However there are various ways to gain funding and we are going to compare some of them.

Crowdfunding

Crowdfunding seems to be ubiquitous across the world and is available to a variety of different businesses looking for funding.

Having taken a look myself, it appears that the information available to consider investing in a business idea is limited. I would prefer to consider the management team experience and personalities, for example, before investing in a company.

Clearly though, many businesses have had varying degrees of success. I wonder if this avenue is saturated or has too diverse prospects to be sure.

SEIS

Our personal preference is the Seed Enterprise Investment Scheme. It provides the right balance of motivation, control and reciprocal opportunity for businesses and investors. Making this scheme even more attractive is the fact that SEIS is promoted by the UK government.

If you want to know how to fund a start-up. There are several tax reliefs available. 50% of your investment is available as a credit against income tax from the very start, up to £50,000 per tax year.

So the average UK worker could recover up to four tax years’ worth of income tax via one SEIS company. An additional rate taxpayer could recover the majority of one years’ worth of income taxes due, while investing in a company close enough to be transparent and providing input to make the company a success.

There are a number of additional benefits and opportunities to save unlimited tax, which you can read about here. We know how to unlock these tax savings.

The creation of SEIS as the entry level version of the EIS has led to the formation of the recent EISA Awards. The Green Shoots launch on the 19th is also an exciting prospect for us.

Grants

Grants are potentially a source of funding. However, there are select criteria in order to qualify and business plans and applications to submit. There are also other hurdles like deadlines or trying to find them in the first place.

In addition, there are some agents who charge fees just to locate and/or give you access to apply for the grants. There is the potential for grants for certain types of trades like social or other welfare entities. This is particularly true for certain locations largely outside of London and South UK.

Angel Investor

Most of us have heard of Angel investors and how new ideas could pique their interest if they can see value where others cannot. The issues might be that they will request a large percentage of equity from your business.

However, Angel Investors also provide their business experience and help you to deliver on your objective. So if you are comfortable with this, it could well be something to consider.

Small Business Loan

Banks should always be the first port of call if you'e looking for financing. They do have funds and they do have funding targets that they need to deliver. Typically, though, new businesses will fall down on the amount that they could loan from the banks.

Trading history is important. The sooner you start to trade and make sales, the more likely that banks will either give you a business loan or give you an overdraft. Both of these options are achievable if you're making sales with even small profits.

Bank loans are also cheap financing options with no interference from any other parties. Having a business loan and or an overdraft can also be a welcome addition to any other forms of financing discussed above.

Our preference is SEIS for UK tax payers and this will give you a competitive advantage in starting your export business. Want to discuss plans for how to fund a start-up? Contact Us here.

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