Raising the money to start your own business may seem a difficult task and capital hard to come by in the current economic climate, but there is more than one way to fund a new business.
The first and easiest option to fund a business start-up is using your own savings or assets if you have them. Stocks, bonds, life insurance, pension plans and property can be cashed in or you can sell off assets to realize cash for the business, particularly if there isn’t a lot of funding required. There’s no waiting around for approval and no red tape involved, but if something goes wrong you may be left with no personal funds to fall back on. Unfortunately most young budding entrepreneurs have neither the assets nor savings they can use to fund a business which is where family and friends can come in useful.
TAKES MONEY TO MAKE MONEY.
Borrowing the money from a relative is a common source of funding especially if the amount required isn’t too high. Family and friends have the added benefits of being open to new and original business ideas too as well as having faith that the business will succeed and less impatient to see a return on their investment. Make repayments through a profit share scheme and be sure to establish a formal agreement between the lender and yourself to keep the relationship businesslike and avoid causing family disagreements. Advice is available from accountants http://www.brookson.co.uk to keep things on a business like footing.
If family can’t help or the sum required is too large, you can look at interesting a venture capitalist in your business. As professional investors, venture capitalists can call on a pool of money which they invest in high-risk, speculative or new businesses looking for rapid growth as well as high returns.
Venture capitalists probably get over a thousand business proposals a year and invest in just three or four per cent of them. They will often require part ownership and/ or equity in the business in return for their investment as well as substantial returns on their money, typically between 25 and 40 per cent over three years and up to seven years.
HANDS-ON HELP FROM AN ANGEL INVESTOR.
So called “Angel Investors” are, like venture capitalists, interested in making a profit but use their own capital to fund new businesses. They too may require equity or part-ownership of the business but you can expect more hands-on help, advice and guidance than you would from a venture capitalist with interests in several businesses.
The first port of call for a lot of businesses when thinking about raising funds is the bank for a loan or overdraft. Over sixty per cent of small businesses approach the bank to fund their start-ups and the banks usually require security, maybe your home, before they will approve a loan. Acceptance generally always depends on the type of business you want to fund, the amount of security they require and having a successful business plan with a projected cash flow of repayments.
If you don’t fancy facing the bank manager, there are plenty of grants available for new business starts up. Grants can be sourced from local development agency as well as banks, the EU or the Department of Business Innovation and Skills which will fund businesses up to as much as 250,000. Grants are one of the cheapest forms of finance but may also have conditions attached such as the number of people employed as well as restrictions on what the money can be spent on.
This article was written by Lloyd, a blogger who specialises in business and finance. He is currently working with Brookson Accountants.
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