In 2016 over 25,000 start-ups utilised some sort of start-up funding to get their business either off the ground, up and running or to develop rapid growth opportunities. So does getting a start-up loan increase your chances of success?
How startups save money – startup business practice survey
Earlier this year, we surveyed 300 startups* based in the UK, USA, Canada and EU to gauge some common themes among young businesses. The findings were illuminating and we’re sure there’s some great advice to be gleaned, here’s a summary:
Set up – The majority of startup business (57%, 171 in total) had at least one permanent team member who wasn’t based in the company’s main office or didn’t have a fixed company base at all. Of those, 7 in 10 (69%, 118 in total) said more than half of the workforce were based somewhere other than the main office, although this figure included local staff who preferred to work from home.
Anecdotally, firms said this was a simple logistical choice. The main reason given was a variation on ‘the best person for the job was based in another city or country’. A number of companies revealed that having local staff work remotely resulted in a saving on office space.
Startups certainly don’t see location or remoteness as a barrier to hiring a team member and in some cases, startups told us that they expected to recruit people into entirely remote positions.
Communications and collaboration – Many startups don’t tend to view email as a primary form of communication, favouring collaborative platforms such as Slack, Trello and Basecamp for project comms. 37% of businesses polled said email was not their main form of communication.
Social media also played a large part in internal comms for the startups we spoke to. 47% (141 businesses in total) said they used instant messaging apps like WhatsApp and Facebook Messenger to communicate in real time with colleagues. Of those who used WhatsApp primarily, end-to-end encryption was the top reason. Convenience was the second most common reason.
Culture and operations – Two thirds of startups said (63%, 190 in total) said they had set office hours, more than half said the hours were flexible (55%, 167 in total) and team members were able to arrive adjust their hours to suit themselves.
Only 8% of startups (23 in total) said they had a formal workplace dresscode, but the majority of those (87%, 20 out of 23) said this only existed because they were regularly visiting customers and potential investors.
We look at how you can use start-up finance to kick start your business and whether seeking start-up loans and business loans online can speed up your growth.
How Start-Ups Should Approach Finance and Small Business Loans
Financing Your Start-Up
Ensuring that your new business has some sort of solid footing is essential for it to become a medium and long term success. You need to be clear on what you need finance for and how it is going to be used.
Your business plan – This is the most important document you can provide. It sets out your business aims, your customers, your marketing and your financial requirements. Ensure that you have explored every eventuality concerning resources, time and cost so that you are prepared to take action firmly and quickly when the need arises.
Draw up a budget – Create forecasts for your sales and expenses and include things like capital costs, equipment and purchasing requirements going forward. Also be aware that sales might not be immediate and getting paid can take longer than expected.
Consider finance – If you are going to need finance, consider applying for it well in advance of when you are going to need it. Most start-ups don’t make much profit in their first few years and you will need to calculate what you might need in order to get through the initial stages of your start-up. Borrowing can come from yourself, family and friends, the bank or from investors.
The Initial Funding Stage is Critical
Using finance to ensure that your start-up has the best opportunity of success from the beginning has been crucial to many. Concerns of small businesses often focus on three important aspects and overcoming them means your business is likely ready to advance to the next growth stage.
- Product testing
- Investor confidence
Product testing – Many small businesses use their initial cash boost to ensure that their trialling and product testing is completed to ensure it is ready to go to market without undue risk. Having a product that is fully market tested can mean it avoids having to recall, modify or change its design; all of which are often costly and time-consuming.
Investor confidence – Getting funding from an investor can also uphold the belief that your business is a worthy endeavour. Many small business owners secretly harbour nagging doubts that their business idea or start-up might not cut it. There is already plenty of competition and getting your head above the crowd can be both ominous and laced with trepidation. With an investor onboard, any doubts are quickly quashed – having the confidence that financial backing comes with makes you more focussed to succeed.
Mentoring – A benefit of seeking a business loan online is that many alternative finance companies also come with mentoring support too. If they see a benefit in lending to your business they might also seek to offer additional support to help make it successful. This can range from marketing and branding assistance to opening doors to communities of buyers you wouldn’t normally have access to.
The initial funding stage enables business owners to unlock doors, release potential and develop your product. It can ensure that the first few years are focussed on business development and not solely on financial survival.
Do All Start-Ups Always Use Loans?
A key question to answer is what percentage of start-ups actually use business loans or start-up loans?
The Company Warehouse, in their 2016 UK Start-Up Funding Report, offered an insight into what kinds of funding options start-ups were taking:
- 75% of recruitment companies and 75% of finance companies had a startup budget over £10,000
- 69% of service based businesses and 67% of creative businesses had a startup budget below £5,000
- 85% of startups were aware of the government Startup Loans scheme but only 5.4% used them
- 43.0% of Startup Businesses were aware of what crowdfunding is but only 1.3% of startups used it
- 82% of startups used self funding to start their business
- 56% used self funding as their only source
- Only 6.8% of startup businesses used funding from a bank to help start their business.
During the period of financial distress following 2008, banks and lenders have been less willing to lend to small business and new start-ups. This has been a situation that not even the banks will deny.
However in 2017, there continues to be debate as to how generous the banks have been in lending to new businesses. Certainly alternative lenders have appeared – ready and able to fill the financial void left by the banks – but has it been enough for new business start-ups to easily find funding or access a business loan online, at the touch of a button?
The key points raised by this report show that access to funding, while recognised as a viable source, remains clearly delineated:
- 76.7% – Self-funding
- 12.3% – Friends & Family
- 6.8% – Unsecured Business Loan
- 5.4% – Start-Up Loans
- 3.9% – Alternative Funding (Crowdfunding, Peer-To-Peer, Angel Investor)
Small Business Loan vs Bootstrapping?
What is Bootstrapping?
When an individual starts up his/her business using only personal finance and from the initial revenues from the new company, without requiring (or wanting) to rely on external sources of funding.
Why Is Bootstrapping The Preferred Start-Up Model?
Further down in The Company Warehouse’s report on start-up funding found that bootstrapping was by far the preferred method of funding a start-up.
Of all the start-ups they interviewed 56% of them were using their own money to support and grow their business and 82% were using self-funding streams as the main aspect of their start-up finance.
So while a huge amount of marketing and effort has been made by the government to impress upon the benefits of entrepreneurship and the easier access to start-up loans, most new business owners are seemingly ‘debt-averse’.
There seems to be three reasons why start-ups are choosing to bootstrap rather than take on start-up and business loans:
Existing loyal client base – Finance isn’t always necessary if you happen to have an existing loyal client-base; ones who are willing to go with you. Having just one gold-standard customer can often be the difference to making it without funding or having to borrow.
Not wanting to borrow – As indicated above it appears that there is a conscious decision, on the part of many of those new business owners and entrepreneurs that were interviewed in the report, of not wanting to borrow, choosing instead to have no debt or personal debt. The advantages of doing this are maintaining complete control over budgeting and costs and not being ‘beholden to any other party.
Self-funding – A preference of new business owners to finance their start-up through self-funding was one of the key takeaways from the report. Key recommendations included:
- Only applying for funding when absolutely compelled to
- Having patience alongside persistence
- Planning ahead
- Utilise as many free resources as possible – both from friends, family and business acquaintances.
Getting a Small Business Loan Online
It’s never been easier to apply for a business loan online and applications can even be accepted within 24-48 hours. So for start-up finance, seeking a business loan or ‘start-up loan’ can be a preferred method of funding your new business.
That is if you are looking for investment in order to achieve quick growth, or you need to capital to fund purchases like inventory, equipment, machinery or technology.
While bootstrapping can only fund a certain amount of your new business, applying for a business loan can help ensure that you can finance your complete business plan from the off.
It can also allow a new start-up a certain amount of breathing room that self-funders don’t have. It offers money that ensures the areas needed to be focussed on, are focussed on.
In short, a business loan from a lender like Access can offer so much more than just focussing on bootstrapping and budgeting down necessary costs:
- Access to a unique network of entrepreneurs (with a wide range of expertise)
- Exposure to both funding and mentoring
- Potential to grow your business incredibly quickly
- Complimentary support package.
Access always work the hardest in finding best finance for your start-up or business. As entrepreneurs ourselves, we understand the challenges faced by starting businesses and have, often, previously overcome them.
It is clear that while many new start-ups are well aware of the financing options available to them, many prefer not to take them.
Whether your business will have a better chance of succeeding with a small business loan or by bootstrapping alone depends on the level of business experience you have, your product, the number and breadth of your existing client-base and no small amount of luck too.
What is clear, is that by applying for a business loan online to Access Commercial Finance, you can take advantage of the deep knowledge, understanding and existing contacts we have in your industry. All of which is set-up to make your business a success, right from the get go.
We polled 300 businesses that self-identified as ‘startup’ businesses between the dates of March 1st 2017 and May 2nd 2017. All business had been operational for fewer than five years but more than six months. Industries included IT, software, lifestyle, fitness, health and recruitment.