Self-employment : Funding

What sort of funding will I need?

Start-up costs are a priority for the majority of new businesses. The sorts of resources that you may need will vary, but would generally be required for some or all of the following:

• equipment: anything from a laptop computer to heavy plant or industrial standard tools and machinery;
• accommodation: renting or buying a work place;
• furnishing and decoration;
• utilities: heating, lighting, water;
• training: additional course(s) to give you the skills and knowledge you need;
• infrastructure: setting up systems and processes to move the business forward;
• marketing: promoting and advertising;
• administrative costs: phone calls, postage;
• employing staff;
• general development: you may need time and/or money to do further research or develop products/services.

The necessity for extra funding does not stop when the business is up and running. You may need to expand your activities, but lack the capital needed to do so.

Are there any other costs?

It is recommended that you obtain various types of insurance: buildings and contents; professional indemnity to safeguard you against legal action; health cover in case you are ill and cannot work; public liability if your premises are accessible to people not connected with the business. You also need to think about setting up a private pension.

Where can I do research and get advice?

Business Link  has a business support finder database of local grants, loans, advice and expertise in your area as well as access to funding opportunities, regionally, nationally and across Europe.

Where are the main sources of funding?

Funding comes in four main types:

• funding you have to pay back, often with interest, i.e. a personal or business loan from banks;
• equity that is put into your firm and may give the investor a say in the way it is run (this includes sponsorship) from venture capitalists or business angels;
• matched funding, where another agency supplies part of the cash needed (typically half of the amount) and you have to obtain the rest;
• grants, awards and scholarships that do not have to be repaid.

Using your own savings and assets (e.g. car, house) may be cost effective and will reveal added personal commitment when seeking further financial support. Investments from friends and family are likely to be made with minimal interest rates, but may not provide the ongoing mentoring and support available from other sorts of funders. Either way, a legal contract should be drawn up in case disputes arise later.

Business Link  should be able to direct you to local funding opportunities. Startups.co.uk , National Federation of Enterprise Agencies and Business Funding  are other useful ways to source funding. Regional development agencies are giving way to local enterprise partnerships and enterprise zones may minimise bureaucracy and maximise investment for business starters.

Awards and competitions are another source of funding. Two examples are The Prince's Trust  and Shell LiveWire  nationally. Your university may offer similar support on campus. Graduates who are still seeking work may benefit from the New Enterprise Allowance (NEA) , introduced from April 2011.

Trade associations and professional bodies may offer grants and sponsorships.

How do I apply for funding?

Almost any organisation offering funding will want proof that you will use the money wisely. They will want to see your business plan and discuss it in detail before handing over any money. Unsuccessful applicants who nearly make the grade may be encouraged to re-apply when they have done more research or acquired additional evidence. You may occasionally be asked to enter some form of competition or selection process.

Are there strings attached?

Most providers like to see evidence of personal investment as this shows your commitment. Funders may specify certain uses for the money such as projects with a social enterprise bias.

Many lenders and investors monitor how you use the money, perhaps by setting targets and outcomes. Some funding is staggered and later payments are dependent on how well you have utilised the first tranche of cash. Matched funding arrangements can be very advantageous although capital availability and timing are key.