Article Contributed by Doug Barden
It is pretty difficult to get a new business off the ground without some kind of start-up capital. You may need to buy fixed assets, pay new employees, or even draw a wage to cover your personal living expenses. There are ways to keep the costs down—setting up a small business from the spare room can work for entrepreneurial IT types—but if your dream is to open a restaurant franchise or a boutique, the only way to do so will be to look into your potential sources of available finance.
Bank Business Loans
Banks have always been a traditional source of funding for small businesses. Going cap in hand to your local bank manager with a head full of dreams and an embryonic business plan might just be enough to secure you a business loan. Or at least it would have been ten years ago. Nowadays, the economic climate has changed and banks are far more risk averse. Your credit history and business plan will need to be rock solid before most banks will even give you the time of day. But there is funding available, so don’t lose heart if the first bank you approach says “no”.
Private Equity
The first place to look for private equity is close to home. If you are lucky enough to have any friends and family with deep pockets and a desire to help, you may be able to secure enough money to get your new business off the ground. Another possible route is to approach a private investor and try to persuade them that your business is worthy of their investment.
Venture Capitalists
Venture capital funding comes from private investors interested in long term growth potential. High risk businesses with the potential for generating massive returns for their investors are attractive to venture capitalists, so if you can’t raise cash through traditional avenues, but you are certain your business plan will make you rich, venture capital may be your best option. The main disadvantage of this type of funding is that your investors will expect to have a say in how you run your business, plus they will expect a slice of the equity pie.
Grants and Government Start-up Initiatives
There are many non-profit organisations and government backed initiatives offering finance solutions for new businesses. Many are aimed at young entrepreneurs aged between 18 and 30, so if you fit the bill, this could be the ideal path to take. Aside from a cash loan, you will also receive lots of support from a mentor to help you make a success of your business venture.
Invoice Factoring
Instead of chasing payment from customers, use invoice factoring to release capital from the sales ledger to help build your business. Invoice factoring companies will charge a fee and a percentage of the invoice, but it is useful way of raising working capital in the early days.
There are many ways to raise finance for a new business start-up, but almost all of them will require that you have an excellent business plan. Nobody will lend you money unless they feel that your ideas are workable, but if you are convinced your business has the potential to be more than a pipe dream, it is time to turn your dreams into a reality and join the thousands of other people who start their own business every year.
About the author:
Doug Barden is a managing partner in Beech Business, one of North Manchester and Lancashire’s leading chartered accountancy firms. For more information on the services they offer, including book-keeping, payroll and accounting, visit http://www.beech-business.co.uk.