Sources of finance

Free Start-Up Articles
Free Start-Up Articles

"Money is the root of all evil", "money brings the worst in people", "money makes the world go round" - and it is usually at the heart of any business success or failure.

Not having enough cash is a clear route to disaster, but so is borrowing too much! This article should give you a clearer idea of how to plot a route between the two.

A cashflow forecast is an essential tool at this stage (see Planning section). This will help you calculate your initial financial requirement as well as the money needed for early days of trading.

Will the bank help you?

Banks provide 90% of all new business finance and are keen to do so, but only if the proposition is a good one! Your Business plan and Cashflow forecast must be able to show that your venture is financially viable. They will also want to know that their money is in safe hands! Your personality, experience and the team around you will contribute to the final decision.

Other lending sources

There are numerous schemes to help start ups and can be found via your local Business Link or Enterprise Agency. Areas that have been identified as deprived often have dedicated funds for loans/grants. The Princes Trust (if you are under 31), Business Ability (for Disabled), PRIME (over 50) and the Fredericks Foundation are other options.

Top tip - keep your eyes open for business competition! Local Dragons Den style events are becoming popular and come with cash prizes! Even if you do not win – they are a great way to test your idea and to gain some free publicity!

Friends or relatives

Friends, Family and Fools are a good potential source of investment because they know you and believe in your ability. However, try and keep the transaction on a business level. Explain that there are no guarantees. Friends and family must understand the high-risk nature of the venture and that there is a strong chance they might not make as much as they anticipated, or might even lose their investments completely.

Did you know? The Body Shop group was formed with a £3,000 loan from a family friend. When the company was sold to LOriel in 2006, founder Dame Anita Roddick and her husband reportedly received over £100million – but friend Iain McGlinn made £150 million!

Business Angels

Is particular type of informal investor, usually a successful entrepreneur, who is willing to invest in high-risk, high-growth firms at a very early stage, and adds value by supplying hands-on business advice. There are estimated to be over 18,000 business angels in the UK who invest over £500 million per year.

The British Business Angels Association (BBAA) is the National Trade Association for the UKs Business Angel Networks. http://www.bbaa.org.uk

Venture Capital

A source of money for start up companies, particularly for those with high growth potential. In return for their investment, the venture capitalists generally receive significant ownership of the company and seats on the board.

The BVCA is the industry body for the UK private equity and venture capital industry. Find out more from their website: http://www.bvca.co.uk/


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