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Start your business 19 January 2021

Your guide to business funding

What to know about funding your start-up and why you might be missing out.

Nadine von Moltke

Funding can be a contentious issue: start-ups want it, but funders want to see established businesses with a track record, and banks require collateral. It’s unlikely that this system will change, but a change of mindset could help you sidestep these challenges and get the resources you need to get your business off the ground.

Funding isn't free

Funding isn’t free; it must be paid back in some form, whether it’s reimbursement, giving away equity in your business or having to meet certain criteria. It’s important to consider that you’ll need to repay the money and what effect that will have on your business.

Upon applying for funding, you’ll need to show revenue projections and prove that you can pay back the money and in what timeframe. If your start-up doesn’t perform well and doesn’t generate (enough revenue), it could prove difficult to meet these repayment terms.

Also, be aware of the context of your funding; for example, government funding isn’t a grant: you need to pay it back. Similarly, bank loans come with interest, which means you’ll be paying back more than what you initially received.

Alternative ways to fund your business

Sometimes borrowing money isn’t an option, and while it’s the most straightforward way of funding your business, it’s not the only way. You’ve got different financing options available, and remember, the most important thing is to get an influx of money so that you can start and gain momentum, but you don’t necessarily need the full amount to do so.

For example, instead of securing a loan, pre-selling a service or product and collecting a deposit or payment upfront is a feasible way to get cash flow running and your business started. Similarly, you can lease the equipment you need instead of buying it. This allows you to make a series of smaller payments instead of one big expense to free up your cash flow and manage costs.

Lifestyle vs business

Securing funding doesn’t automatically mean your business will be a success. Your quest for funding needs to be purposeful. Make sure that when you’re applying for funding, it’s for the right reasons. Is it to grow your business or to live a certain lifestyle? Is what you’re using it for, for the sustainability of your business, or is it poured into houses, cars and maintaining a lifestyle and image?