Whether you’re starting up a new venture or looking to expand, one of the most important issues is finding finance.
A lack of access to finance is one of the biggest problems facing start-ups. And many promising businesses find themselves unable to progress because they can’t muster funding for vital investments, such as new infrastructure or training.
Here’s our quick guide to your business finance options.
Your own savings
Personal money is the main source of funding for many start-ups. You might have built up savings over time, or have income from other sources, for example from the sale of shares or property, or from a redundancy payout.
Friends and family
Another good source of business funding is loans from friends and family.
Be sure that that they fully understand any risk attached to the loan, and that you draw up an agreement clearly stating what the terms are (for example, date of repayment, any interest accruing), so that there are no messy misunderstandings later.
Once the go-to option for businesses needing an injection of funds, in the current economic climate it’s significantly harder than it used to be to get a bank loan. If you do decide to apply for a bank loan, you’ll need a solid business plan to present, with realistic sales projections.
It’s also highly probable that they’ll still want you to match any loan amount with other funds from elsewhere – you’re not likely to get 100% of your start-up costs via bank loan.
Another bank option is an overdraft. Always speak to the bank before using any unauthorised overdraft, or you could be hit with punishing charges.
If you need to finance new assets, such as vehicles or equipment, leasing or hire purchase may be another borrowing option. This allows you to spread the cost of the purchase rather than paying the full cost upfront.
If your business sells on credit, you may be able to use factoring or invoice discounting to borrow against the value of invoices that have not yet been paid. This kind of financing can be particularly helpful for a growing business, automatically increasing the amount of funding available as your sales increase.
These types of borrowing are offered by specialist asset-based finance companies as well as the main high street banks.
Venture capital and crowdfunding
If you have a good start-up idea but aren’t able to satisfy normal lending criteria, you might be able to get funding from a venture capitalist or business angel. They will want a stake in your business in return for funding, but may also be able to offer expert guidance to help you develop.
Crowdfunding allows you to raise finance by pitching for small contributions from lots of different people. There are usually conditions attached, such as needing to raise 100% of the amount requested.
In both cases, you will need to have a persuasive sales pitch as well as a solid and realistic business plan.
Depending on the nature of your business and what you’re investing in, you might be able to claim UK and European grants and/or tax credits. Businesses in the arts or innovative technology sectors, or located in assisted regions of the UK, may find there is extra help available.
You might be able to borrow money through a peer-to-peer lending service. These online services are an alternative to a bank loan, allowing you to borrow from individual investors instead.
Much riskier, you may also be able to access very short-term funding from credit cards, and from the recently-emerged ‘payday loan‘ companies.
You must make sure you’re on top of finances if you choose these short-term options, as they can attract enormous interest and late payment charges. They are absolutely not an option if you’re unsure when you’ll be able to repay, or unclear on when you’ll see a return on the investment.
This article is provided only for general informational and educational purposes. It is not offered as and does not constitute legal or other professional advice on the subject matter in question. You should not act or rely on information contained in this website without first seeking professional advice on the subject matter in question.