There are two main sources of funding, which are equity and debt. When raising external funding the parties involved will need to see some form of a business plan, which has to be acceptable to them before they will commit with funds.

Equity

Equity means the funder takes a stake in the business i.e becomes a shareholder, in return for providing a given amount of money. Also be aware that over time, you may wish to raise further funds. However each new tranche of funding means that the new equity funder will want a stake in the business. The result of this is that your personal stake becomes diluted over time. This sounds like bad news, but in practice for most growing companies the value of the business should have increased over time. There are a number of sources of equity finance.

Family and friends – This may be the easiest and cheapest source of funding, however be aware that this could lead to fraught relationships.
Business Angels – business angels are typically high net worth people who have substantial sums of money at their disposal and are prepared to invest some of it into business, particularly start-ups. They vary as to how demanding they are in terms of stake they require. They may also wish to participate in the running of the company and even sit on the board. This may not be a bad thing and they can often bring valued experience to the table. Business angels generally invest somewhere in the region of £10,000 - £500,00, with a typical figure around £50,000. There are various websites you can visit to put you in touch with business angels; Business Link, the National Business Angel Network, YABA.
Venture Capital – If you are looking to raise £1m + you will probably need to look into venture capital funding. Most VC’s won’t invest anything lower than £1m and some aren’t interested in start up businesses, preferring to invest in well established companies with sound trading history. For further information visit the British Venture Capital website.
Strategic Investors – Strategic investors are parties that wish to invest as part of a strategic move, i.e they operation within your industry.

Debt

Loans are where a bank / bulding society gives you an agreed amount that you are required to pay back at regular interviews over a given period of time. You will also be required to pay an agreed level of interest on the borrowed sum. Loans are the classic way to raise finance and don’t involve giving a business stake away, however you must be able to afford the re-payments. The usual source of loans are obtained from a high street bank, and generally range upto £20,000 for an unsecured loan, with a higher sum being secured against a tangible asset.
The Princes Trust might be able to help young people under 30 requiring more than £5,000 to get started. The benefit of the Princes Trust it that loans come with a free business mentor to assist you with your business.

Grants

• Accounting
• Loans
• Banking
• Tax