Starting a business is a very exciting time for budding entrepreneurs , but it can also be the most stressful. The following guide is a quick overview of how you could raise start-up cash for your business.
The first place to look when starting a business is your own bank account, though this can be a risky option. Capital tied up in property can be used via an equity release mortgage deal, though a redundancy package or pension windfall can also provide funds to invest in a venture.
Approaching a bank for business loan is a common route to funding a company start-up. Any lender will want to review a detailed business plan before imparting any funds and will expect collateral, in the form of either the firm's assets or a property. Securing a loan against the latter is risky.
There are a plethora of local business grant schemes nationwide, geared to each industry sector and project scale. For a helpful list, check out Business Link.
Bear in mind that grants will typically apply to a specific project rather than general business costs. The Prince's Trust provides loans to unemployed 18 to 30-year-olds with bright business plans. The trust offers up to £4,000 for sole traders, or £5,000 for a partnership.
Buying an existing business
Sometimes buying an established business can prove to be a shrewd move. Opting for a business which has revenue coming through it might be a good step to owning a business. Banks however will usually only fund the cost of the property, so if the purchase price of the business is £200k with £170k of that being for the property. The bank will only fund the £170k for the property you will have to find another source of finance for the remaining £30k. Have a look at businesses for sale at the moment.
So-called 'angel investors' help firms get off the ground. They usually provide funds in exchange for a small stake in the firm of between five and 15 per cent. Such an investor will be just as important for his or her contacts, insight and experience as money. Ensure that prospective investors are accredited.
Notoriously ruthless, venture capitalists will demand a large slice of a firm – typically 40 per cent – in exchange for their investment. To woo such a suitor, you will need an experienced entrepreneur on your side and an understanding of their expectations. Tread carefully when signing a deal, particularly when it comes to liquidation expectations – these outline the division of funds when the firm is sold.