First thing to note is that no matter where you go, you’ll need a business plan. Your funders will want to see how the business will work; how you’ll market and promote it and whether there’s enough demand for it. Most importantly, they’ll also want to see the finance section to know whether your business will bring in enough money to cover your expenses. Getting a business plan sorted out should therefore be your first priority. If you want to know more on this, give me a shout and we’ll be able to help you further.
Once your plan is sorted, you’ll have a better idea of how much you’ll need to borrow. Be realistic on this. If you want to borrow £20,000, your funders will want to know what you’ll spend this on. If your plan shows you will only be able to spend £10,000, they’ll want to know why you’re borrowing £20,000 – to cover operating expenses is not a real reason these days.
The next step is to have a think about where you can get the money you need from. I meet many new businesses who have their heart set on getting money from investors. But, investors may not be the best option for you, so please make sure that you shop around and consider your options properly. Let’s have a look at the options open to you:
1. Savings The easiest and cheapest (to arrange) way to fund a business is from your own savings. And the good thing is you can even pay it back to yourself when the business grows. Don’t forget to keep records though so that it’s clear if anyone asks where the money has come from.
2. Friends and Family Another great way to borrow money. Again, make sure you have something in writing showing how much money they gave you and whether or not they want some profits or the money paying back in return. It’s all very well saying that the money they’re giving you is a gift, but when you make £1 million in your first year, they may well change their minds. Get it in writing!
3. Bank Loans If you want to get a bank loan, remember to shop around. Even if you’re with one bank, they might not offer you the best deal, so visit two or three and see what they’ll offer. Remember, they want you as a customer, so be prepared to walk away and you should get a good deal from them. But, also remember that when lending you money, the banks go on risk, so the more you can reduce the risk the better. Previous experience in your business idea is great as is putting up half the funding through your own savings or using your house as collateral. The longer your business has been running, the more the risk is reduced, so don’t forget to renegotiate your rates frequently. Looking after your account helps too – if you don’t pay your loan or go overdrawn frequently, the banks won’t be too keen on negotiating with you next time.
4. Overdrafts Can be an excellent way of getting funding for your business and you can get quite high amounts from this method (i.e. £9,000+). Don’t forget to get your overdraft authorised by the bank though – if you go overdrawn without getting it agreed first, you’ll be heavily penalised.
5. Prince’s Trust Provide business loans for those who can’t get money from other sources. You’ll need to be between 18-30 and be from one of the groups they support (i.e. unemployed, in or leaving care, low education or in or leaving prison) to get access to this. Contact www.princes-trust.org.uk for more information.
6. Development Loan Funds If you can’t get money from a bank, but are over the age of 30 years of age, you may want to consider Development Loan Funds. They will lend money to you if you can’t get it from anywhere else. To find a fund in your area, contact www.cdfa.org.uk.
7. Angels and Investors This is becoming a popular option after Dragon’s Den, but I would think very carefully before you go down this route. An angel or investor will mentor and support you, but they can also demand up to 50% of the business and that means 50% of your profits too! They also won’t consider lending money to some businesses – for instance, if you need money to buy a franchise, they probably won’t invest as it isn’t your business. They also are unlikely to be interested, if your business won’t give you huge profits as it won’t be worth their while. Contact www.angelinvestmentnetwork.co.uk or www.angelsden.co.uk to find out more.
8. Grants Quite a few businesses ask me about grants, but unfortunately these days, grants are few and far between unless your business idea ticks a box that is high on the Government agenda. Check out www.j4b.co.uk to find ones that are applicable to you.
9. Match Funding Matching Funding is getting the funding you need from two or more different sources. Let’s say I needed £10,000, I might go to one bank for £5,000 and then to another bank and ask them to ‘match’ it – i.e. give me another £5,000. Match funding cuts down the risk for people and most of the above sources of funding should consider it.
I’ve covered the main options open to you if you’re considering funding for your business. Remember to consider all of your options before finding finance and also be patient (I know that’s difficult being a small business owner), but loans don’t usually get sorted out overnight – they will take a bit of time to come through so build this into your business plan. Good luck and let me know how you get on.
To learn more about this author, visit Helen Dowling's Website.
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