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Traditional Finance

The most suitable finance option for your business depends on many things.

These include:

  • How much funding you need
  • Your current business revenue or if you’re a new business
  • Whether or not you’re willing to offer personal assets as security – this can make it easier to get funding but is risky if you’re not able to maintain payments
  • Whether or not you own a business property – this can make it easier to get funding
  • Whether or not you’re willing to sell shares

Read more on different ways to finance your business with The Business Finance Guide from the ICAEW and The British Business Bank.

Your personal funds (self-financing)

Investing in your own business can be a low-cost option: after all, you don’t have to pay interest on your own money. But make sure you’re not putting your own way of life at risk, and that you keep enough in reserve to keep you afloat in challenging times. Furthermore, it suggests self-belief, and investors may be more open to contributing if they see you have funded the initial costs yourself.

Borrowing from friends and family

This can also be a low-cost source of funds. If you go down this route, make sure that your family and friends are fully aware of the risks, so that you don’t risk jeopardising your relationship.

Loans

Business loans are generally given to help you buy fixed assets – such as machinery or office equipment – where the amount you need isn’t going to change over time. If you are applying with a bank you will need a good business plan in order to succeed.

Below are some business loan providers:

Business overdrafts

Overdrafts are a form of short-term financing that can be useful if you need to cover short-term fluctuations in your cash flow.

Retained earnings

These are the profits you keep in your business and are the main source of finance for companies that are already up and running. Since no external investment is needed, they’re usually the cheapest way to fund your growth plans.

Hire purchase or lease

These arrangements allow you to ‘rent’ an expensive asset, rather than purchase it outright. If you hire purchase, you’ll own the asset at the end of the agreement, while a leased item must be returned.

Bring investors on board

To do this successfully, you’ll need to capture the interest of potential investors with a well-prepared business plan that shows:

  • Your vision for the business
  • Your goals
  • Financial projections
  • How much finance you need
  • What you’ll spend the money on
  • How you’ll repay them
  • The profit they can expect to see

Make sure you provide potential investors with good credit references. And if you can, make an investment yourself – it shows you’re committed to the business.

To read about Angel Investment click here.


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