There are many sources of funding available ranging from overdrafts to equity financing. Most are designed to meet particular needs and the choice will depend on the type of business, its structure and obviously the stage of its development. Due to the wide range of funds available making the correct choice can prove difficult. To determine which path is right for you need to pose yourself a series of questions: what risks are you willing to take, have you got savings, are you willing to invest friends and relatives capital, how long have you got to raise finance, are there any grants available, will you be able to cope with repayments, are you sure that the return on the investment is going to be worthwhile or even enough and also what type of business you are in as some business types are seen a high risk businesses.
The first and most important step in raising finance is a solid and convincing business plan. There is a fierce competition for the attention of banks, venture capitalists and other investors and potential investors receive hundreds of business plans every year. One business angel once stated that he received more than 300 a year, and therefore only read the first page of each. If you are to win backing for your new company, your business plan must stand out and should always be fine-tuned according to the target audience. Business plan templates can be downloaded from the Microsoft Office website (www.microsoft.co.uk) and also number of bank will offer free templates.
The most common ways of funding a business are your own money or the money of family and friends. If you have the money readily available this can be beneficial as there is neither bureaucracy nor waiting periods involved. You should however remember that if something goes wrong, you will have nothing to fall back on and losing family and friends over a business is rarely worth it.
You might well need to borrow some money to start your business. That will usually mean going to a bank and in fact, approximately between 60% and 70% of small businesses call on their local bank to borrow a sum of money to get the company up and running or to fund growth. Banks will however always ask for security and if you are unable to provide it you will most likely have to keep on looking. Also, always remember that banks are not the only source of finance and it would be advisable to obtain specialist financial advice from an Independent Financial Advisor. This is useful because they are in position to provide an objective analysis of your financial situation and have access to the whole of the financial market.
Grants range from local initiatives run by local development agencies to Business Link funding as well as private funds across the country and might be more suitable if you are looking for a smaller amount of money. Grants are one of the cheapest forms of finance but can sometimes have non-financial conditions attached to the grant such as number of people employed or restrictions on items on which the money can be spent. To find out what grants and loans are available, visit www.j4b.co.uk.
Lastly, you could also try to find an Incubator or Business Angel. Incubators (www.businessincubator.co.uk) normally take an idea at an early stage and support it until it reaches the next stage of growth. Incubators range from university business support units to pure venture capital led incubators and are generally backed by people with varying amounts of experience. Business Angels (www. nationalbusangels.co.uk) are private investors (often senior managers or former business owners or) who have a certain amount of capital in their bank accounts and who are interested in directly investing in private companies. In return for their investment (from approximately £25,000 to one million pounds) as either a single angel or a network of angels, the party involved will generally ask for an equity stake and perhaps take a seat on the company’s board.
Whichever way you decide to seek finance, always shop around for the best deal, have your business plan ready for inspection and just to be on the safe side, seek professional advice.