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How to start a small business with small capital?

Published on 17th December 2018 - Last update on 19th December 2018

Deciding to start a small business is no doubt one of the most challenging tasks you’ll ever undertake. As well as fleshing out your idea and developing an effective business plan around it, success also depends on your ability to support the necessary capital requirements. But if you’ve got access to only a small amount of capital, the idea of pursuing your vision can feel like banging your head against a brick wall. However, it doesn't need to be an exercise in futility. By doing your research and exploring what funding opportunities are available, you can succeed and secure a lasting future along the road ahead. So if you’ve got an idea and you’re determined to monetise, here’s how to start a small business with small capital.

    1. Stick to what you’re familiar with

Although exploring new ideas and concepts can be exciting, deciding to establish a business in an industry you know very little about is risky. Instead, you may want to stick with something that you’re already experienced in. Doing so will also minimise the need to hire outside assistance at this stage. However, if it’s something that you feel would add value to your customers, you could eventually decide to bring on board someone who has the skills necessary to integrate the idea into your goods and/or services. But for the time being, remain focused and prioritise what you already know.

Eager to take your newly established small business to the next level? Need access to additional capital? Apply for New Business Finance and learn more about how your business could benefit.

   2. Reach out to your contacts

When starting a small business with only a small amount of capital available, marketing yourself effectively can seem like a tall order. But this is where sticking with what you know and retaining your existing employment contacts can help. So rather than deplete what funds you do have, you could call upon the support of friends, family, colleagues and contacts who may recommend your goods and/or services, passing along your contact details in the process. Besides, word of mouth marketing is free and often very effective, yet may only cost you the occasional birthday or Christmas card.

    3. Manage your capital wisely

When working with a tight budget, the value of managing your capital wisely cannot be understated. Yet nevertheless, there are expenses associated with starting up that can’t be avoided. As a business owner, it’s up to you to make sure that you’re not spending capital unnecessarily. That’s why you need to establish and frequently update your business’ Profit and Loss Statement, listing a detailed rundown of what’s responsible for your expenses. By listing them, you can go through with a critical eye and find out whether they’re critical, optional or unnecessary.

    4. Explore free marketing opportunities

From small business to an established company, marketing your goods and/or services effectively is a vital responsibility you can’t afford to neglect. Yet with a small capital allowance at your disposal, you may believe this goal to be beyond your reach. However, there are plenty of ways in which you promote and market your business for free or at a nominal cost. For instance, establishing a Social Media page for your business can offer a low-cost way of presenting goods and/or services whilst building and engaging with your customer base. Plus, you could approach local media sources such as newspapers or community magazines (e.g. Tring Living). As such, it’s just a matter of looking and spotting opportunities whilst they last.

How to raise capital in support of a newly established small business

Having a great idea that has the potential to generate revenue is one thing. Unless you have the necessary funds at your disposal, driving your small business forward will be a struggle. However, as imposing as this pitfall may seem, there are a variety of ways in which it could be overcome. So if you’re passionate about achieving your vision and are prepared to put in the hard work, you may wish to consider:

  1. Your own savings

Although it’s tempting, deciding to make use of your own savings should be done so very carefully. Of course, you may have to occasionally use your own capital but choosing to support everything yourself comes at great personal risk, especially if you have a 100% liability stake in the business. This means that if your business folds, you’ll lose all the capital you’ve invested. However, doing so does have the advantage of not needing to give away equity to 3rd parties or paying interest. Therefore, although you can take this route, it should be properly balanced against the risks, astute financial planning and the need for cautious spending.

  1. Asking friends and family for support

On the other hand, you could seek the support of friends and family, who are more likely than anyone to provide you with the funds your small business needs. However, you need to understand that, if the business fails, losing their capital will no doubt lead to strained relationships. But one way in which you could avoid this is by structuring their investment as a short-term, high-interest loan that’s gradually repaid in instalments. However, if you’re considering such an arrangement, you should do having sought professional legal advice first.

  1. Applying for a Grant

Or, you could instead apply for a Grant, which is often perceived as a source of free money. However, such schemes are very popular, so you’ll no doubt be up against stiff competition. Yet nevertheless, Grants are schemes that often run by Government, local authorities, sector-specific organisations, growth hubs, corporate entities and private individuals in support of a particular purpose. As such, you could receive funds to help purchase new equipment, acquire eco-friendly vehicles, research and development to working capital expenses. Just remember to check whether your business is eligible and that you may need to match the funds that are on offer using your own capital.

  1. Crowdfunding

Meanwhile, you could support the development of your small business by applying for Crowdfunding. This involves expressing the benefits of your business and appealing to 3rd party investors across an online platform such as Crowdcube, Kickstarter and iFundWomen. As such, you’ll need to run a targeted marketing campaign involving blogs, vlogs, posters, demos and/or hosting live discussions highlighting why they should invest. However, although there’s no limit to how much capital you can raise in this way, anything that you do receive will come at the expense of equity (shareholdings) in your business.

  1. Seeking the support of an Angel Investor

Alternatively, you may want to consider approaching an Angel Investor who is familiar with your market, providing access to a source of invaluable advice and guidance. However, Angel Investors will only invest in a limited number of businesses (usually around 8, though this can vary) and they’ll also negotiate a shareholding in your business in exchange. That’s why you need to carry out in-depth research beforehand and check whether they’re a suitable match. As such, you need to ask yourself whether they’re someone you can work with and that their goals ultimately align with yours.

  1. Applying for Small Business Finance

Finally, if you’d rather avoid giving away equity or risking your savings, the other option available is to apply for a Small Business Loan. At this stage, qualifying for finance from a traditional financial institution could prove a challenge on account of possessing a limited trading history. However, the Alternative Finance Industry is opening up the doors to a new generation of business finance lenders who are providing access to a wide range of small businesses loans including Secured Business Loans, Merchant Cash Advance, Invoice Factoring, Overdraft Replacement and Asset Refinance. It’s just a matter choosing the product that is most appropriate for your business’ needs.

Need help supporting your small business’ development?  

Starting a new business is always going to a difficult, but if you welcome a challenge and firmly believe in your idea, success could be within your grasp. However, starting a small business with a small capital reserve can be daunting and may feel like the odds are firmly stacked against you. But by doing your research and exploring what funding opportunities available, this obstacle can be overcome. All you need to do is source a product that aligns with your business’ needs, which is where we can help.

At Rangewell, we’re an Access to Finance specialist who’s mapped over 400 lenders to offer you an overview of more than 23,000 business finance products. Our services are free to use and we’ll also guide you through the application process. So if you’re looking to take your small business to the next level but need access to additional funds, apply for New Business Finance today or find out more with Rangewell.

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David Harrison

David Harrison

Content writer
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