How to Raise Capital for your Start-Up Business

Raising capital can seem like a difficult task when you’re a start-up business, as at this point you have a restricted trading history to support your applications. A short financial track record with limited scope to develop a good credit rating can also hinder your efforts. 

Start-up business capital can be derived from various sources, however, including business loans and alternative solutions such as asset finance. This can be a good choice for start-ups as there’s no requirement to provide a personal guarantee.  

So what capital financing solutions might be available to your start-up business? Let’s look at business loans first.

Using a business loan to raise capital

Business loans can be taken over a long-term or short-term and used to finance various capital projects. You might need to purchase an expensive hard asset, for example, as a foundation for growth.

If you choose a secured loan you’ll have to put forward collateral to the lender. Unsecured lenders, on the other hand, don’t require collateral but they are likely to need a personal guarantee. 

Eligibility for a business loan

Some lenders specialise in loans for businesses without a long trading history. To establish whether you’re eligible they’ll need to see your accounts and bank statements, and any evidence of a good trading history, even if it’s relatively short. 

Raising start-up capital via asset refinancing

Asset refinance offers a way to raise capital by using one or more of your existing balance sheet assets. You may operate using heavy machinery, for example, that if refinanced, could provide you with a lump sum of capital to use as you wish.

Asset refinancing requires no personal guarantees – you simply ‘sell’ the asset to the lender and then rent it back from them with no break in your right to use it. Once you’ve made all the fixed repayments required your business takes back ownership of the asset.

Eligibility for asset refinancing

As the lender can repossess the asset if necessary there’s no need for any further security to be provided. This can significantly improve the likelihood of start-up businesses being eligible. 

Equipment finance

Equipment finance is also an accessible choice for start-up businesses. It can be used to raise the capital for expansion plans so you become more competitive and, ultimately, take a further share of the market.

Hire purchase is just one form of equipment finance. It uses fixed repayments and a fixed term, and once the agreement ends, your business takes ownership of the equipment via a completion payment.

Eligibility for equipment finance

Eligibility for equipment hire purchase can extend to businesses with little proof of creditworthiness, as the equipment is hired until the end of the agreement. 

Raise capital for stock

Short-term stock finance can help propel your business from the start-up stage and establish a secure footing in your market. It’s a form of working capital finance that raises the money needed to fund business development.

The short repayment terms, which are usually within 12 months, can make this a cheaper way to raise capital. This type of loan can also be used for other purposes, such as paying staff. 

Eligibility for stock finance

You’re likely to need 12 months’ trading history for the lender to establish your business’s eligibility for short-term stock finance. They’ll also look at your cash position – essentially, whether you’ve traded with positive cash flows. 

Raising capital for your start-up business in the right way helps it to grow and improves its financial resilience. With a range of potential options available, there’s little to stop you from using it to move away from the start-up stage and, in time, stand head and shoulders above your rivals.

Article written by Karl Hodson, UK Business Finance. Karl is responsible for helping businesses across the UK raise funding for a variety of purposes such as working capital, expansion and capital equipment. He has specialist knowledge of raising finance through invoice and asset-based lending, crowdfunding, loan and equity funds and Government schemes.