Do you have a big business expense on the horizon that you’re not sure how to finance?

Sourcing funding to expand your business can be difficult if you’re on a tight budget and just starting out. Taking some time to find out all your options can help make your next step the right one. We’ll use the example of a car purchase for your business to keep things simple, but this guide can apply to a number of other purchases. 

We’ll detail different areas you can consider for your business financing, including:

  • Funding from yourself and those around you
  • Funding from institutions
  • Funding from private investors
  • How Countingup can help

Whether you’re a sole trader or have just started an exciting new business, learn how Countingup can help you manage your business finances and expenses below.

Funding from yourself and those around you

Financing a business purchase, such as a business car, can be done from your own business’ net profit. If you’re already trading, you can set aside some of your earnings in a savings account each month. 

This can be advantageous as it means you don’t have to incur any debt, and your new purchase is tied to your business’ organic growth. However, depending on the sum you need for the car, saving can take time and may cost you sales while you’re stuck operating without a faster way of getting around.

Asking friends and family for money or loans is another way many businesses get started. Depending on your circumstances, this may be less feasible but relatively large sums of money can be gathered from lots of small donations from many people.

Similar to before, this can offer you the ability to avoid debt and access more funds than you would organically be able to at your business’ early stage. Unfortunately, money can be a touchy subject for some people, so it’s essential to approach your social circle carefully if you’re to be successful. 

A third option for your business may lie in crowdfunding. Platforms like Indiegogo, Kickstarter and SeedInvest exist as spaces where budding entrepreneurs and innovators can propose their ideas for financial backing. In return, patrons often receive early access to the business’ product or service. 

This route has been increasingly successful, allowing many companies to advertise directly to their intended market and gain sales figures from preorders. Successful examples include Oculus wearable headsets and Pebble Smartwatches – each able to launch multi-million dollar companies. Unfortunately, there is no guarantee that you’ll be successful, so other financing options should be kept in mind.

Funding from institutions

Many UK high street banks offer introductory business loans to help you get established. These can be via either secured or unsecured loans

If you’re looking to finance a car for your business, you’ll have an asset to secure your loan to. You can also secure your loan to other assets like your home or with a loan guarantor (a family member or friend) who agrees to undertake the loan if you’re no longer able to pay it back. Unsecured loans are typically harder (but not impossible) to successfully apply for as many banks are hesitant to loan money without anything being offered as collateral. 

These finance options are more common and will likely feature at some point in your business’ future if you’re successful. Specifically, secured loans can provide lower interest rates; therefore, they should be your first option to explore if possible. When applying, successfully communicating a clear understanding of your business’ growth and financial strategy will help the likelihood of your application being accepted.

Other day-to-day financing options from banks, including overdrafts and credit cards, can be suitable for lower sums and shorter-term borrowing. However, if you’re purchasing more expensive items like a car, these may not stretch enough to cover your costs.

Government loans are also available, offering fixed 6% interest rates and free mentoring for up to 12 months as you begin trading. However, this lending is treated as a personal loan and not a business loan and therefore is harder to claim insolvency from if your business is unsuccessful. The Department for Business, Energy & Industrial Strategy has a resource hub detailing business support in your local area, including financing to operations advice.

Government support and loan schemes can be viable options for your car financing if you’ve been declined from many of the previously mentioned options.  

Funding from private investors

A final option for financing your car purchase can be approaching private investors and venture capital firms.

These are individuals or private companies who invest in small businesses. They aim to collect dividends or sell their shares at a later date if and when your business is successful. 

This finance option can be beneficial as it gives you quick access to funding, however, communicating your value and business plan is critical to your success, and you’ll need to be careful not to give up too much equity in your company. This is partially because you may want or need to raise more money at a later date where you’ll need the equity to do so, but also because less of the business’ profits and ownership will be in your control. 

Unfortunately, if you are a sole trader, this option will not be available to you as you don’t have shares or equity to sell. Find out more about the differences in our article Sole Trader or Limited Company: How to Set Up Your Business?

How Countingup can help

Keeping on top of your business’ finances is essential if you’re trying to secure funding.

Countingup is the business current account and accounting software in one app that is helping thousands of UK business owners to manage their finances. 

The two-in-one app gives your real-time profit and loss insights, the ability to create invoices in instants, and smart bookkeeping features including automatic expense categorisation. 

Find out more about how Countingup can help you run your business here.