Starting a new business requires funds. Without enough funds, businesses struggle to make needed investments in talent, equipment, and marketing. That's why most businesses need outside funding sources.
It is also true that you're going to need more than just extra cash flow to start and scale any business. You'll need partners and investors to start any company and to scale up. You will need a good strategy too for how your new business funds will be used to expand.
Here are 10 Funding Sources for Women-Owned and Minority Businesses
Borrowing from friends and family
Startups have difficulty getting a traditional bank loan or investment from venture or angel capitalists without an established track record. So founders often turn to informal investors after tapping their savings, typically family members and friends.
These agreements combine best wishes, an attitude of pay-me-when-you-can, and little hopes of a substantial return. That could be the most realistic view of funding for families and friends. It might also be best not to formalise the loan in certain situations, as doing so will increase expectations that it will be repaid in full.
Many individuals may opt for a loosely structured deal in which repayment will begin only when a company has sufficient cash flow and can afford to make payments, a state that many firms do not achieve until three to five years. However, it needs careful attention to the terms between your family members and you. Online services can also assist in structuring loan agreements between friends and family. Also, please make sure a family loan doesn't have unspoken strings tied to it.
Suppose you have significant personal credit and a new business concept that you think is unique or outstanding to put your finances on the line. In that case, it might be worth considering a personal business loan. These solutions have the advantage of being simple: No hidden fees, no fancy formulas, just a straight forward personal loan.
That said, here is the downside, and this is important: When you take out one of these loans for your company, the lender is entering into a contract with you as an individual—not with your business. This suggests that you are still entirely and personally liable for the unpaid balance redemption if anything unfortunate happens and the company fails.
Venture capital is a type of private equity investment, where a company receives unsecured financing in return for a share of its equity. The aim of venture capital as a sector is to make early and mid-stage companies invest to profitably exit their investment at a later stage (usually within 5-10 years).
Venture capital invests in emerging businesses, many of which would not yet make a profit, if not most, but have a disruptive market offering with very high growth potential. For many reasons, businesses pursue venture capital funding, such as increasing their manufacturing and sales operations, improving their product growth, expanding their market, and recruiting new employees.
Unlike venture capitalists who take care of pooled cash from several other investors and put it in a strategically controlled fund, angel investors usually use their assets.
Though angel investors typically represent individuals, the organisation that provides the funds can be a limited company, limited liability company (LLC), a bank, a trust or an investment fund, among several other kinds of vehicles.
For startups with the potential to earn a high income, angel investors could be an option.
Expect tight scrutiny. Many angels are former entrepreneurs who want to be involved and provide advice to businesses.
Angel investors prefer to specialise, so to make sure there's a good fit, look at their investment history.
Small companies searching for financial support from angel investors frequently turn to people willing to invest in promising prospects for startups. After you've tapped your friends and family, angel investors can be a substantial funding source to consider. Yet angels don't usually write blank checks. They would want to see success and a way to get out of the contract with meaningful profits down the road. So expect angel investors to do much analysis into your business plan and thorough investigation.
It's not easy to get funding from angel investors, but if you take the right approach and are a good fit for their needs, it can be achieved. And the benefits may be beyond your company's money, but their experience in both business operations and your industry's niche.
Economic development agencies
Public sector agencies focusing on supporting economic and social growth are key SQW customers operating at national or subnational levels across the UK and Ireland. Clients in this field range from organisations that focus on business growth and promotion of investment, to skills development and jobs, to housing.
Specifically for black and minority ethnic companies, there are proven business support networks that provide information about starting a business, how to get funding and advice, and other help once the business is up and running. This support includes:
The African Caribbean Business Network (ACBN) is a network for business growth whose membership includes African and Caribbean companies' companies across various business styles and activities. They offer business networks to assist businesses owned by African and Caribbean companies in the UK.
The ACBN regularly organises business support seminars and events to help BAME businesses to come together, to learn how they can help their business grow, and champion the cause with big business and the government.
Meanwhile, the National Black Women's Network (NBWN) via network sponsorship, offers dynamic initiatives allowing women from diverse backgrounds and professions to establish strong professional and social contacts; high-quality education and training programs; leadership and national recognition. The NWBN works to ensure that women's participation and power are recognised as vital forces in the business, corporate arts, media, entertainment, private and public sectors.
The British Government allocates billions of pounds every year to women and minorities to support small enterprises around the world, which will help them survive or extend their operations. This government funding comes from a government grant, low interest or no interest loan, tax credit, or financial donations, which is normally provided by local, state, and national governments. Grants are also one-time grants that do not need repayment, making them an outstanding option for company startups.
One example of government grants is Start Up Loans. This is an unsecured personal loan, unlike a business loan. You can get free advice and guidance to help write your business plan and successful applicants will get up to 12 months of free mentoring. Startup Loans are government-backed and charge a 6% fixed interest rate per year. You can repay the loan for a duration of 1 to 5 years. There is no charge for registration and no fee for early repayment.
Loans and Microloans
When it comes to business loans, women and people from poor backgrounds can have special loans that are distinct from minority loans, which most often apply to individuals from different ethnic groups who put them at a competitive disadvantage.
Crowdfunding gives entrepreneurs the chance to collect hundreds of thousands or even millions for investment from anyone with capital. For anyone with an idea to pitch it in front of waiting investors, Crowdfunding offers a forum.
Investors can select from hundreds of ventures and invest as little as £10. Small businesses/startups can raise a minimum investment of at least £10,000, with no maximum amount a company can raise. Crowdfunding platforms produce income from a portion of the raised funds.
By taking advantage of startup platforms like Trendscout, you will finance your business by getting many people interested in investing your small business startup through small investments. Each investment from a backer incrementally adds to your goal, so even the smallest contribution helps, and you don't need access to an accredited investor to fund your startup.
Setting up crowdfunding campaigns is also a great way to gain exposure for your young business while you're seeking money for the venture. However, Crowdfunding does not usually generate large sums of startup capital, and maintaining a campaign can be time-consuming. If you don't end up meeting your crowdfunding goal, you might have to end up bootstrapping the rest of your startup costs.
An incubator is an organisation that offers free or low-cost workspace, mentorship, expertise, access to investors and, in some instances, working capital in the form of a loan to help startup companies grow and prosper. Other entrepreneurial firms will operate around you, often with a focus close to yours. Company incubators seek to build future companies with high growth and help them succeed, fostering local and national entrepreneurship.
There are broadly two types of incubators. The first one is private incubators run by businesses renting office space as their primary business model. Then there is the second type, usually free, run by a government agency or university to facilitate startup and business development in a specific area.
There are different challenges that women and startup founders from minority groups face raising the funds they need to scale. However, there are many available options (such as TrendscoutUK) helping these startups raise the funds they need. Hundreds of start-ups are reviewed by our team of experts every year. We evaluate every company we work with, its potential, mission and ethical practices, ensuring that every start-up we serve will always comply with our values.
Our network of innovative startups and investors, combined with over 30 years of industry experience, allows us to identify up-and-coming opportunities before they reach the masses.
If you are interested in finding a startup that aligns with your values, you can schedule an appointment with us today.
Rest assured that someone will get in touch with you and help you every step of the way.