Starting a business always requires MONEY, which can be raised in one or more of the following ways:
- Personal savings
- Friends & family
- Bank loan
- Government grants & loans
- Private Investors
- Venture capitalist
The easiest and most stress-free source is your savings. No one asks you questions, and you are not accountable to anyone but yourself. Another source of finance is family and friends, who believe in the business concept and are willing to invest in the business or lend to you the money interest-free. If you have a mortgage, you might want to consider getting a re-mortgage. However, this is quite risky and needs to be seriously considered and where you have a partner, discuss it with them.
Another source is the bank, where it is imperative your business plan is well written, clearly defines the business idea, shows potential and offers return on investment. As mentioned earlier it is your written sales pitch towards convincing an investor to lend you money. You could either apply for a loan or request an overdraft. Ensure you compare the interest rates and repayment terms offered by the various banks. Tip: Never go to your bank first; the one you have an existing relationship. Use other banks as a test bed to practice and refine your responses, presentation and business plan.
The government, local authorities and charities are another source for business loans and grants. What is available is sometimes often dependent on the area you live in and type of business, while some grants and loans are targeted specifically at ethnic minorities, and some like Prince’s Trust charity & LiveWIRE, are targeted at young people aged between 18 and 30. Government loans are normally available via Small Firm Loans or Schemes available in assisted areas or regions falling within the Single Regeneration Budget (SRB) programmes. For a comprehensive list of Government and Charitable financiers contact your local business link office.
Amongst the above, you also have the Private Investors also know as “business Angels” and Venture Capitalists. This is where things get more intricate and not often as straightforward as getting a loan from the banks, govt or charities. However, the Private Investors are willing to invest in more risky ventures but most times in return for shares in your company.
Venture capital funds are funds put up by investment trusts, pensions funds, banks, insurance companies, private individuals, regional development agencies and industrial corporations. These funds look to invest in companies that can reach significant profits in three to four years in other to regain their money. When approaching venture capitalists, good management and operating in a large or fast growing market are often vital.