You need financial backing to do... pretty much anything, but where do you start?

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From business loans to investment opportunities, getting funded always begins with knowing what options are out there for you.

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To help make the process easier, we’ve put together a guide on how to finance a business, including the different funding options available at the various stages of your business.

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Step 1: Prepare your financials

Do your due diligence before seeking out investment opportunities. Knowing exactly where you're at financially will make it far easier to snap up funding.

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Model the opportunity, and what type of funding you'll need to get there. How much financial info do you need to provide?

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It totally depends on how far you are into the journey. For example, are you a new start up or have you been trading for six months, a year, or more?

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If you’ve already started trading, you’ll need to produce financial statements and reports showing that you can take your business to the next level.

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You'll need to show:

  • Net profit
  • Sales
  • Margins
  • Cash flow
  • Customer acquisition cost
  • Churn rate
  • Debt
  • Accounts receivable turnover
  • Break-even point
  • Personal investment

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These numbers should be readily available if your business is in full swing. If you’re just starting out, you’ll need to make sure you research these figures or estimate them using industry benchmarks and forecasts based on your own research.

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Step 2: Decide how much financing you need and why

You need to know how much investment you're after and where that money will go.

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Your future investors will want to know that you have a clear understanding of how you can grow your business, and that their funds will be put to good use.

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There are plenty of reasons you look for investment, so for each that apply, you'll need to clearly demonstrate how you'll allocate funds, and what the outcome of those investments will be.

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Those potential reasons could include:

  • Entering new markets
  • Growing your user base
  • Manufacturing your product
  • Expanding your team
  • Moving into a new office or warehouse

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Whatever it is, show how the funds are going to unlock your company's next stage of growth, then map that onto the bigger picture market opportunity.

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Step 3: Choose the right financing option

There are plenty of options available when it comes to financing your start up - the hard part is wrapping your head around what they all are.

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We’ve done a lot of the hard work for you here. Each of the options listed below has its pros and cons, but ultimately whether they'll work for you depends on your business's model, maturity and tolerance to risk.

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Bank loans

Traditional bank loans are the most popular source of funding for many businesses. That said, banks are risk-averse, and it can be challenging to get banks to invest in a start-up that doesn't have more than a couple of years' trading history.

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Pros

  • They tend to offer lower interest rates
  • You aren't required to give up any equity in the business

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Cons

  • The process can be tedious
  • Banks can be risk-averse
  • Banks also tend to prefer certain business types over others (i.e. limited companies over sole traders)

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Venture capital

VCs invest in your company in exchange for equity in the business. Their equity stake  varies depending on the valuation of the business and the amount they invest.

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Pros

  • You can unlock a big tranche of funding!
  • Access to expertise
  • Established business relationships and networks
  • Can accelerate growth dramatically

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Cons

  • You have to give up equity in your business
  • Funders may be involved in the day-to-day running of your business

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Revenue-based Financing

Revenue-based financing is a great option for businesses with predictable revenue, who want to fund growth through reliable acquisition channels like online ads. Instead of paying interest or giving away equity, instead you pay back the advance as a percentage of your future revenue.

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Pros of Revenue-based Financing

  • No interest
  • If sales slow down, your payments do too
  • Keep all your equity
  • Very quick to get funding (less than 24 hours)

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Cons of Revenue-based Financing

  • Only for businesses that generate repeat revenue
  • Invested amounts aren't usually more than $5m

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Who it's best for: Companies with predictable recurring revenue, such as ecommerce or SaaS businesses, benefit from this type of flexible, as they can fund ads without giving away part of their business.

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Incubators and Accelerators

Programs like incubators and accelerators are designed to give businesses an initial ‘boost'. They focus on scaling and growing ambitious start-ups by providing seed investment and mentoring in exchange for equity in the business.

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Pros

  • Many include business development programs
  • Access to expertise and networks
  • Start-up teams are grown into their roles and supported

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Cons

  • Selection processes can be gruelling
  • May require time commitments/schedules to be followed

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Government Grants

Government grants are there to support new businesses in specific sectors of the economy. Each grant has different criteria, and some may require you to match their investment amount.

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Pros

  • No repayments are needed
  • No loss of equity
  • Widely available

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Cons

  • The selection process is reserved for small businesses
  • Short-term solution

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Friends and family

It isn't uncommon for friends and family to offer you support in your new venture, usually as a customer, but sometimes as an investor too.

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While it may give you flexibility, you have to consider its effect on your relationships. Be honest and open, and make sure to put formal agreements in writing.

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Pros

  • Quick funding with flexible terms
  • No loss of equity
  • Comes with a built-in support network

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Cons

  • Investment amounts could be limited
  • Personal relationships may suffer
  • Investors may not be very experienced

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Business Credit Cards

Funding business growth with credit cards affords flexibility because they can be used for day-to-day expenses and can be used by different members of your team.

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Credit cards also have additional rewards and benefits such as 0% on purchases for a specified time, air miles, and cashback opportunities. However, this financing option is limited to small amounts - you may be able to make it to the end of the month, but you won't be able to build your business with it.

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Pros

  • No loss of equity
  • Multiple members of staff can have access
  • Flexibility on spending

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Cons

  • Interest and annual fees
  • Expensive form of borrowing
  • Smaller loan amounts

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Crowdfunding

Crowdfunding works by pitching your business online and offering incentives, perks, or rewards to people for investing in your business. This form of funding is often used to raise funds for new or existing companies to fund future growth opportunities.

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Pros

  • No repayments or loss of equity
  • Great way to get financing for business ideas that may not appeal to conventional investors
  • It helps you test the public’s reaction to your business idea

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Cons

  • No guarantee of funding
  • It may take a while to raise capital if you don’t already have a following
  • It takes a really long time to prepare for and close a round

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Step 4: Prepare your application and documents

Once you’ve chosen the right type of investment for you, you'll need to prepare your pitch.

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Your Business Plan

A business plan is essential, all investors and lenders will want to see it before considering whether to fund you.

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Your business plan identifies how the investment will help you reach goals and milestones in the immediate future - usually over the next 18 months. Therefore, it is crucial to put serious thought into building a business plan and if you have no experience, make sure to get advice from an online coach who can guide you.

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As part of your plan, your should include an exec summary with  It should show that you have a firm understanding of your target market's intent to buy your product, and demonstrate how your proposition stacks up against the competition.

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You'll also want to prepare a pitch deck that includes the following info:

  • Vision and value proposition
  • The problem you are solving
  • Target market and opportunity
  • Business model
  • Traction and validation
  • Marketing and sales strategy
  • Your team
  • Financials
  • Competitive analysis
  • Investment required and planned use of funds

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Think beyond the person you're sending them. Do these docs give the person reading them enough confidence to share more widely?

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If you're looking for more info on creating a business plan, WeWork have put together a great guide.

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Should you fund your start up?

While some businesses bootstrap without external funding, many will need some help to invest in their growth.

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As a rule of thumb, if the below points are true, then it's probably a good idea to look for funding

  • You have a clear strategy on what you will use the capital for and how it will grow your business
  • Your business is ready for growth and needs an injection of capital to launch in new markets, take on competition, or develop new products
  • You already know how and when you will pay the borrowed capital back
  • You are able to step away from the day-to-day management of your business as you look for funding

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Later-stage financing options

After your initial investment, you may need to look at ways to find additional funding for a second-stage growth plan.

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Below are a few options for how to finance a business once you’re past the start-up phase:

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Debt funding

Debt funding, also known as debt financing, is a way of raising capital by borrowing a sum of money. This capital will need to be paid back at an agreed later date, and usually has added interest.

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Pros

  • Repayments are usually tax-deductible
  • No loss of equity

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Cons

  • Repayments are required regardless of revenue
  • Interest to be paid to lenders
  • May need to put up collateral

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Follow-on capital

Follow-on capital is further financing from investors who have already put money into your business.

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Pros

  • Efficient deployment of capital
  • May include more than the initial investment

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Cons

  • May lose board seats to investors
  • You need to convince investors all over again

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Venture capital

Some venture capitalists focus on later-stage investing, looking to provide capital to companies that are gearing up for growth.

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Just like with venture capital for start-ups, VCs will invest in your company in exchange for equity in the business. The equity they take varies depending on the valuation of the business and the amount they invest.

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Pros

  • Access to expertise
  • Established business relationships and networks
  • Can accelerate growth dramatically

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Cons

  • You have to give up equity in your business
  • Funders may be involved in the day-to-day running of your business

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Angel investors

Angel investors are wealthy individuals who provide funding in exchange for equity in your business. The vital difference between angel investors and VCs is the investment amount, with VCs generally offering more (in exchange for more equity).

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Pros

  • No repayment is required
  • No cost involved 
  • Angels are more willing to take risks

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Cons

  • Loss of equity
  • Loss of control of business

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What's the best way to finance  your start up?

To make the most of the various financing options available, you first need to understand how each will impact your business.

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Putting the time into researching what your business needs to grow, and the different finance types on offer, is the only way to determine how you're going to fund your business.

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A clear goal for your company - and for your own lifestyle as a founder - should be your 'North Star', which helps inform other decisions. While it's helpful to know how the rest of the market has funded their growth, there's usually a couple of ways to approach the problem.


At Uncapped, we offer equity-free, interest-free capital with offers ranging from $100k to $10m. See if you qualify!