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Starting a business has never been easy, and harsh economic conditions have made getting one off the ground even more difficult. But, by exploring all the available options, you can improve your chances of success

ACCA students are often ambitious, determined and enterprising: it’s not unusual to find you starting and running your own businesses while simultaneously working for others and studying for your professional qualifications – and harsh economic conditions often do more to encourage than discourage this. But getting a business off the ground has never been easy, and if you are trying to raise finance at the moment you will find it especially challenging. Fortunately, you can improve your chances of success by exploring all of the available options, and considering their various advantages and disadvantages, before you make any decisions or commit yourself to any particular course of action.

When you start a business for the very first time you have no proven track record: this makes you a relatively high-risk proposition (regardless of whether or not you are generating revenue). So even if you have a brilliant business idea or the most impressive business plan in the history of the world, you are probably going to struggle to obtain funding from commercial providers. This is the main reason why so many new small businesses (and in particular first-time start-ups) are ‘self-funded’. Colleagues and ex-colleagues, family members, friends, and friends of friends, are all much more likely to be willing to take a risk on you. But this approach has advantages and disadvantages.

On the plus side, your personal enthusiasm will have much more influence on family and friends than other hard‑nosed potential backers. Those close to you are also less likely to demand a high level of interest, or insist that their investment buys them the right to be involved in the way you run your business (though this isn’t always so). They will be less interested in seeing your business plan than experienced lenders, and less inclined to scrutinise it closely. But this is a mixed blessing, as their chances of seeing their money again and your chances of business success will both be improved by thorough business planning, so do it anyway – everybody involved (including you) should be aware of the risks being taken.

Too close for comfort

The responsibility of borrowing from family and friends is almost as vast as the potential for misunderstandings, so you need to carefully manage their expectations – and be sure to cover the worst-case scenario. As personal regard for you can easily override good judgment, it seems immoral to borrow from people unless they fully comprehend that they may never see their money again. ‘I got my first $10,000 of seed funding from a friend who could afford to lend it,’ says entrepreneur Paul Graham, who decided not to look for funding closer to home. ‘I could have borrowed money from my parents,’ he adds, ‘and the reason that I didn’t, was because I didn’t want them to lose it.’
If some or all of this puts you off the notion of risking the funds of your family and friends, or your relationships with them, you may be more comfortable exploring some of the other alternatives – such as existing sources of personal borrowing. These include raising finance on your home or pension and taking out a bank loan. When Justin Cooke started his web design and building company (Fortune Cookie) 10 years ago, he used £3,000 he had saved and met his monthly running costs by credit card. ‘I paid the debts off each month from the money I was making,’ he recalls. Of course, not all entrepreneurs will be able to generate a revenue stream fast enough to do this without incurring interest charges, so this approach is not for the faint‑hearted.

Take it for granted

Fortunately, when the start-up funding potential offered by personal contacts and personal equity has been exhausted there are other possibilities. Depending on your age, circumstances, location and the type of business you are trying to finance, you may (or may not) be able to apply for a grant. These are almost as abundant as the potential grant awarding bodies out there – of which there are many. Across the world, businesses, charities, central government agencies, and regional authorities, offer access to tens of thousands of types of grant, and billions in funding. For example, the US government operates more than 1,000 grant programmes, through 26 different agencies, awarding a total of $500bn in grants each year.

So, how do you find out what’s available in your particular region and circumstances, and determine whether or not you can meet the criteria for eligibility? In common with all sorts of research, the internet is a good place to begin (see ‘Explore grants’ below). ‘Start out by finding out what is available to your business type, in your sector and in your area,’ advises Wayne Gibbins, manager at the European grants directory J4B. ‘Focus on your market,’ he says, because ‘if you operate in a niche, or your idea is particularly unusual, you may be able to claim a grant which might not have many other applicants.’ A lot of grant providers are very focused: they may aim to help women, people in particular regions of circumstances.

Gather together the information on what’s available and filtering the possible from the impossible is not a rapid process, and you will need to devote a fair amount of time and effort to this, before you move onto the next and equally time-consuming stage in the process. ‘Grant applications take time,’ warns Gibbins. ‘The forms are long, and the answers need research and care,’ he adds, ‘so allocate your time generously, even if small sums of money are involved.’ If you know of anybody who has successfully obtained a grant, they may be able to help you save time or improve your chances of success by providing a few tips on why their applications worked.

Despite initial appearances to the contrary, grants are not entirely ‘free money’. Even if you do not have to pay them (and some will need to be repaid from future revenue), you will have to administer their use carefully, spending the money in a particular way or using it only for a specific purpose or project. Grants come in various guises: some offer partial funding, matching your input on a 50/50 basis, for example; rather than hard cash, some offer goods and services. When British Airways recently awarded ‘Opportunity Grants’ to 400 businesses across the globe, for example, the ‘winners’ were given free international flights. There are also ‘grants’ that might be better termed ‘soft loans’, as they offer favourable terms and conditions, such as very low interest, no interest, or a very long repayment term.

Support from social enterprises

One example of this is the growing microcredit industry, which makes very small loans available to very poor people who want to become self-employed, without the need for collateral. Some are traditional ‘not-for-profit’ enterprises and others fall into the ‘social enterprise’ category, where making a profit is just one of a number of equally important aims. Providers range from Grameen Bank (which focuses on Bangladesh), through the government-run Microfinance and Small Loans Centre (MASLOC) in Ghana, to more innovative international organisations such as Kiva ( By partnering with microfinance institutions and using the internet, Kiva connects entrepreneurs (in more than 180 countries) with loan requests to individuals who want to make small loans, and are not looking for a financial return on their investments.

If none of these options provides the funding you require, it is time to move on to more commercial possibilities. Business angels, private equity investors, and venture capital companies all merit consideration (again, the internet is a good source of contacts and providers), but they sometimes favour investments in particular sectors (such as biotechnology, e-commerce, or green enterprises), and many of them operate on a scale that means that they are not interested in entrepreneurs who want to be sole traders or set up very small businesses. ‘I researched every option,’ says entrepreneur Tabitha Potts, including family and friends, business angels, grants, social enterprise loans, and then ended up funding her small business launch with a £10,000 loan from Deutsche Bank.

But if you end up following in her footsteps and approaching commercial providers of funding you will need to be much better prepared than you are for any of the other options. Business plans, market research and planning, cash flow forecasting and other short and long-term financial projections must be thoroughly undertaken and professionally presented. Commercial providers operate with the primary motive of making money, and before they lend to you any or buy equity in your business, you will need to convince them that you know what you are doing – and that you represent a reasonable risk. As Peter Ibbetson, chairman of Small Business Banking at RBS and NatWest, comments: ‘When we lend people money, we like to be sure that there is a reasonable chance we will get it back.’

Be businesslike

When you source funds from people you are close to the familiarity can lead to potentially dangerous level of informality. It is important to carefully think through the financial arrangements you are making, discuss the parameters with your investors, and then state the terms and conditions clearly, and in writing, just like any other business arrangement. You will need to think about the interest rate, how (and when) the money is to be repaid, and grapple with thorny issues such as whether the money you are borrowing is a straightforward ‘loan’ or an ‘equity’ investment (see the ‘Loan or equity’ panel).

Last updated: 11 Aug 2015