Financing a Business
A lot of small businesses are started with a small budget. However, whatever size and type of business you will need to spend some money on getting it up and running and need to consider how this will be done.
Depending on how much money you need to get started there are several options open to you:
Most small business owners decide to fund their business ventures out of their own savings. If you are working form home, particularly if you offer a service based business, this can be the simplest and easiest way but of course you need the savings in the first place.
If you don’t have any savings, now would be a good time to start saving so that you know you have some money to fall back on.
Family and Friends
Always a tricky one but they may be willing to invest in your great idea. You need to make sure that you have a clear agreement about the repayment arrangements, interest rate (if any!) and what happens if it all goes wrong, you want to take a bigger share of the profits etc etc.
This can be a good way of borrowing money on more favourable terms such as lower interest rates, lower security requirements and more flexible repayment terms. You do need to be careful however as you need a plan in case the relationship turns sour or they decide that they want to be involved with the business. Also what happens if they want their money back?
Make sure everything is in writing and that you are comfortable and have answers to these questions.
Bank Loan / Credit Cards
Bank loans can be difficult to obtain for a business, however, if you are if you are running your business as a sole trader, you have a wide range of options as to lenders and a search on the internet can find you the best rates.
These bank loans will more often than not be taken out in your personal name so if the business ceases trading you will still need to make the repayments.
Some lenders may require you to produce a business plan with profit and growth projection and projections of cash flow
Securing a loan against your property is one of the cheapest ways of raising finance, however you need to be aware of the warning “your home is at risk if you do not keep up repayments on a loan secured against it”
This is becoming a more popular way of raising funding for your new business and involves members of the public pooling their money to help you hit a fundraising target. You can get crowdfunding for a small or large amount of money. There are lots of different schemes available, each with different criteria, fees and repayment/ investment terms.
There are a variety of government backed grants both at a national and local local level which are designed to support people starting up a new business.
Get an outside Investor
If you have a great business idea, others may be interested in investing in it but will want a percentage of profits. An outside investor can be a great way of really building your business and at the same time getting some valuable business expertise.
With any sort of funding you need to make sure that you don’t bite off more than you can chew, ensure that you are clear on how much you really need and how you are going to pay it back.