Funding your New Business Start Up

Finance Options for Your New Business Start up

The type of finance you choose will depend on what kind of business you are starting, how much money you need and what you will use it for. For example, you could:

• Use your own savings or personal borrowings to fund the business, particularly if you can't obtain finance or investment from external sources
• Borrow money from family or friends. However you should carefully consider the risk that they could lose their money if your business fails
• Borrow from a bank if you have a credible business plan and can offer some security. Many businesses use overdrafts for day-to-day borrowing and to manage cash flow, and loans for long-term funding, or to finance large purchases such as equipment. If your business is likely to have peaks and troughs in its cash flow, it's essential to be able to clearly illustrate these to your bank so you can plan an overdraft. When considering bank finance, it is generally a good idea to take professional advice from your accountant or business adviser.
• Aim to attract outside investors - eg by selling shares to business angels or venture capitalists. This can provide short-term finance without the need for repayment, and can also bring in expertise along with funding. However, it usually means giving up shares in your business, and investors may want some control over its management.
• Qualify for a grant or government support. These can provide very cheap financing, and often come with business advice or subsidised consultancy. However, there is usually a lot of competition for grant schemes, and you will need to meet various criteria - depending on the scheme. I have to say, they are few and far between now.
• If you are finding it difficult to obtain bank finance, you could also consider commercial lenders - such as insurance companies and building societies. You may get a better deal - eg lower interest rates - and they are generally less restrictive - eg if you have a poor credit rating. However, commercial lenders are also subject to fewer regulations than banks and you may have to provide some security in order to obtain funding.
• Look for finance from other areas - eg from a community development finance institution - if your business only needs a small amount of funding, or if you are setting up in a deprived area, or in a sector not normally covered by banks or other lenders.
• Consider Crowd funding - Crowd funding or crowdfunding (alternately crowd financing, equity crowdfunding, or hyper funding) describes the collective effort of individuals who network and pool their resources, usually via the Internet, to support efforts initiated by other people or organizations. Crowd funding is used in support of a wide variety of activities, including disaster relief, citizen journalism, support of artists by fans, political campaigns, start up company funding, or free software development, inventions development and scientific research. Crowd funding can also refer to the funding of a company by selling small amounts of equity to many investors.

Most businesses use a mixture of finance sources. For example, you might invest your own money to cover market research, bring in outside investors to share the risk and borrow from the bank to purchase equipment and machinery.

 

More to come on Business Angels Vs Venture Capitalists and how to access them

Remi Okeshola

MD – RBSS Consulting Ltd

Providing Real Business Solutions and Services

www.rbssconsulting.com

 

Source: Business Link webpage and other sources