Starting a business during an economic downturn
Sources of start-up finance in an economic downturn
Finding the funds to start your business can be a challenge during an economic downturn. Financial institutions may switch their focus to less risky forms of investment.
However, with a strong business plan, you may find borrowing may be relatively cheap, as loans may be more affordable with lower interest rates.
Additional funding options may become available as government planning switches to helping economic recovery.
Ways to source finance in an economic downturn
If you need to raise money to start up your business, there are various options, including:
- Personal money - such as using savings, redundancy payments or a pension windfall, or even financing from friends and family.
- A business loan from a bank or business investor - this may be more difficult during a credit crunch. Any lender will want to review a detailed business plan before loaning any funds - see bank finance.
- A grant - you may be able to find a business grant scheme geared to your industry sectors and project scale. You should be aware that applying for a grant may take some time. Search our Northern Ireland business support finder for available grants, advice and support.
Essential to raising finance is convincing investors or grant bodies that your business is sound. This means showing that your idea is worth investing in and that you have what it takes to run your own business successfully in tough times.
Top five tips on getting finance in an economic downturn
- Make sure you have a realistic business proposal. Have you calculated the money needed to start-up?
- Think about and plan your ongoing budget.
- Start to plan your finances by thinking about costs, living expenses and sales targets - and whether these are realistic given the economic conditions.
- Make time to research the market conditions in the downturn. It helps to show you are serious about your business.
- Be prepared for hard questions.
Other finance options in an economic downturn
Banks are not the only option when it comes to business loans. You could also explore the following:
- Angel investors, or business angels, usually provide funds in exchange for a small stake. They are often just as valuable for their contacts, insight and experience as for the investment they can offer.
- Venture capitalists may demand a large percentage of your business in exchange for investment. Ensure you have a clear understanding of their expectations.
Find out more about other forms of business investment in our guide on how to secure equity investment.
Start a business Helpline0800 027 0639