How to Finance a New Business

0
120
New Business

As you embark on the journey of setting up your business, in whatever form, you will find that it is not cheap. Wherever you turn your focus to on starting your business you will find expense, from marketing to infrastructure, to when you register a company name, easily done via a formations company, it all costs money. Understanding where you can access that finance is important and here we will accentuate those options.

Personal Savings :

The first option to look at is funding your business with personal savings. This option is not without risk as you are using your own money and should anything go wrong you may find yourself in fiscal difficulty.

Personal savings are typically used in two ways when starting a business, the first is buying the equipment you need to start your business and the second is to financially support yourself as you make the transition from employed to self-employed.

Many investors may wish to understand if you have used personal savings in your start up, after all, if you don’t invest in yourself why should they invest in you?

Investment :

Another option is to seek investment from investors, these people will buy a stake in your business with the aim of making a profit on that investment in the future. Investment can help you start your business, achieve a specific goal or stimulate growth.

Assessing how much investment you require is vitally important, by having a clear goal on your investment requirements you will be able to work towards that and monitor progress.

Investment can come from a variety of sources, this includes friends and family who want to share in your vision and hopefully success, investment bankers or even fund managers. Be careful of investment from friends and family, if it all goes wrong it may strain the relationship and if things aren’t going well you need the support of those friends and family.

Investment is not always easy to secure so be prepared to look at other options.

Loans :

Like them or loathe them, the bank supports 9 in 10 new businesses through some sort of loan. The most popular loan for a new business is an overdraft, which forms the working capital in the early days of the business. The other option is a fixed term loan with fixed or variable interest rates, these are typically larger loans used to purchase assets or materials. Repayments for loans are typically made in 2 different ways: either a monthly direct debit or with repayments tied to transactions the business makes.

There is another loan option to that of the bank, they are government start-up loans.

Government Loans :

Recognising access to start up loans was difficult for some; the government introduced a government-backed personal loan for new businesses. These loans range from £500 to £25000 and are repayable over 1 to 5 years with a fixed rate of 6% interest and have no set up charges. In addition to the loan, you receive access to free tools for preparing to apply for your loan, writing your business case and financial forecasting. You also receive 12 months free mentoring!

In addition to government loans you can also apply for grants, these are non-repayable amounts of money which businesses can apply for. Grants are not guaranteed and depend largely on your business, sector and size.

Grants are available for a wide range of activities, which include but not limited to, building repair, training of staff, taking on apprentices and promoting growth.

Crowdfunding Campaigns :

In recent years the growth of publicly backed campaigns bringing new products to the market has grown enormously, in fact, the World Bank predicts that by 2020 crowdfunding will exceed £65 billion.

Crowdfunding allows “backers” to donate to a project in return for exclusive, discounted or early access to products. Donations must be received for your project for a set amount in a set period of time.

This a very good option if you are confident you have the customer base to fully fund your campaign, however, if you have doubts you can meet the required targets for funding then you may wish to look at other options, as if you don’t meet the targets you don’t get any donated money, whatsoever.

Read Also :

LEAVE A REPLY

Please enter your comment!
Please enter your name here