If you’re looking for lucrative ways to raise capital for your start-up business you have some options to consider. The good news is that it’s never been easier to raise start-up funds than right now. You have a range of resources available at your fingertips, you just need to know where to look and the risks involved before making a decision.
Here are five of the most lucrative options when seeking start-up capital, as told by IW Capital.
What is The Enterprise Investment Scheme?
The Enterprise Investment Scheme (EIS) is a tax relief scheme the government has created to encourage investment in start-ups and small businesses. There are two schemes created by the Government including EIS and SEIS.
Under the EIS scheme, investors are able to claim back up to 30% of the value of their investment in income tax relief. In simple terms, this means an investor can save £3,000 in income tax if they make a £10,000 investment in an EIS eligible company.
Check if you’re eligible for EIS investment before seeking funding, and make sure you make potential investors aware.
What are Angel Investors?
Angel Investors, also called seed investors or private investors are individuals with a high net worth looking to invest in small start-ups. They are typically looking for some ownership equity in exchange for funding.
Most Angel Investors already know the person or persons looking for funding, or are at least loosely connected in their network. So, if you’re looking for an Angel Investor, start by asking around within your inner circle and spread out from there.
What does Venture Capital mean?
Venture capital is a term for capital that investors provide to start-ups that they see as having long-term growth potential. A venture capitalist can be from any type of financial institution, such as an individual, a business, a bank, and so on.
In return, a venture capitalist will often seek an equity stake in the business. Their return will be dependent on the growth and profitability of your start-up.
What is Crowdfunding?
Crowdfunding is one of the lowest risk options when raising capital for your start-up, but it also comes with some obstacles. The easiest way to get started is to look at attending a crowdfunding event such as Crowdfinders or use one of the online crowdfunding platforms, such as Kickstarter or Indiegogo. Then write a proposal outlining your business goals and objectives, set a target for how much you want to raise, and offer some form of incentive or reward for investors.
The main issue with crowdfunding is that you’re asking for dozens, hundreds, or even thousands of individual investors to pledge small amounts of money. This can make offering rewards difficult, and if you don’t meet your target the project will fail.
Bank Loan/Government-Backed Start-Up Loan
If you’re going to apply for a bank loan you need to be aggressive when seeking out the best rate. The pros are that you don’t have to hand over any equity in your business, and you have complete control over how it’s run.
The main drawback is that you might have to secure the loan against your assets, and you will have monthly payments to make.
Another option is to apply for a government-backed start-up loan. The government has a scheme offering loans from £500 to £25,000 to start-ups to help grow their business. There is a 6% fixed interest rate, but there are also some perks such as support writing your business plan and free mentoring for successful applicants.