Finding the right Finance for you.
22/06/2010It is vital you choose the right financing options for your specific needs. And it might be that a combination of options could work best for you.
The most common are using your own money, borrowing from family or friends, applying to a bank or another external investor. There may also be other funding you’re entitled to through grants and Government support.
Before you do anything you need to prepare a business plan which will include a financial forecast. It is essential you have an accurate picture of your financial requirements. That includes everything from start-up costs and running expenses and needs to include enough capital to cover the first half year, particularly as there may be customers who don’t pay on time and yet there will still be bills to pay!
You also need to estimate how much you need to live on. Businesses take a while to get going and so you have to be realistic about your own living costs to ensure these are covered.
Self financing your business means you will have much more control. However, there are risks attached to this. If the business fails or goes through a lean spell, you could put yourself and your livelihood at risk, particularly if you’ve had to remortgage or take on additional loans to support this funding.
You could ask family and friends who may be happy to give you much easier borrowing terms than a bank. But remember you could be risking a relationship if things turn sour in the future. If you do choose this route, make sure you seek legal advice and draw up a contract to ensure there are no grey areas or loopholes which could create issues between both parties at a later date.
External investors will be attracted to businesses which offer less return immediately, but have significant long-term potential. Often investors will bring in expertise and usually aren’t as strict about seeing a return on their money in the early days. But remember they will have a share in your business and your profits which means an element of control. You may think business angels are not for you, but don’t dismiss them before you’ve done your research - have a look at British Business Angels or Company Partners.
Overdrafts and bank loans are the most common source of finance. Before lending, a bank will want to know if you are a good risk. You will need a credible business plan, evidence of successful experience in business, proof of your own investment in the business and be prepared to offer some security.
But before considering any of these – research, research, research – we can’t stress how important this is and you might unearth several routes to securing cheap financing through grants and Government support. The Government currently offers three Solutions for Business while Business Link has a comprehensive Grants and Support Directory. This should be your starting point.
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