Financing a fashion business has always been a challenge, due to the high upfront costs developing & producing a collection, the length of time from initial investment to getting paid for your goods.
And, as we all know, building a brand takes time.
You may be able to start using your own savings but it’s likely after the first season or two, you’ll need to access further funds to help you expand and grow your brand. It’s not the industry for anyone looking to make money quickly, but luckily there are a number of options available, depending at what stage you are in your business journey.
The 2 main types of funding are:-
• Debt based (loans)
• Equity based (giving part of your business away in return for cash)
Below are some of the options available to you:-
• Bootstrapping – using personal time and money to get the brand up and running. Tough, but teaches you to be creative and scrutinise all expenditure.
• Family, Friends and Fools – people who will give or loan you funds just because they want to help you.
• Start Up loans – a government backed scheme to help business trading 24 months or under to access a loan, which is great as comes with FREE business mentoring. As a delivery partner for the scheme, it’s been a lifeline for the 200+ brands we’ve helped to get a loan.
• Reward Crowdfunding –online platforms that allow you to raise funds in return for giving rewards. This can be used to pre-sell products and get product validation, so helps build your brand.
• Banks – no doubt they have to be part of the mix (overdrafts, unsecured and secured loans) but can be tricky to get a loan if you don’t have security to back it up, and the interest charged can be prohibitive.
• Peer to peer – these online marketplace platforms match people with money to invest, with those looking for finance – some give personal loans like Ratesetter and Zopa and others offer businesses loans to those that have been trading a couple of years eg Funding Circle
• Business Growth Fund – another government backed loan scheme, aimed at those trading 12 months or over. We’ve assisted several of our clients use this to fund their expansion.
Many of the above involves taking on debt. The other route is to attract equity funding, which is often the best option when you need larger amounts of money to take your business forward.
• Private angels/investors – There are private investors and business angel networks that organise introductions to groups of potential investors. Ideally the investor/s will also be able to help you with access to their contacts and business knowledge.
• Equity crowdfunding– also online platforms, but instead of giving rewards away, you are giving equity away to a large group of small investors rather than just 1 or 2 large ones.
Investors often want to see proof of demand for your products, press interest etc. so finding them is easier once you are established and have a track record. You’ll need a well thought out business plan, a compelling pitch deck, and to show you have the passion and drive to make your brand a success. And remember……
- Finance is likely to be an issue at every stage of your business journey
- Allow time – most options aren’t quick!
- It’s often necessary to engage multiple streams of funding
- The good news is alternative funding options have helped raising finance become accessible
By Alison Lewy