How to raise £100,000

It’s a tricky situation asking for a loan from people so close to you because you’ll feel doubly responsible for the money they’ve lent you, but you could use this as extra motivation to ensure the business does succeed. If you’re using cash supplied by friends and family you might want to effectively sell them a stake in the business and draw up some legal documentation to cover this too.

3. Bank loans & other institutional debt

Often people’s first (and all too often only) thought when looking to raise money for a business venture is to head straight down to the bank and ask for the cash there.

Banks and building societies now seem to be more keen than ever to lend money to business start-ups but there are a few things to remember before making an appointment with your bank manager.

Nobody will lend money to you without a reasonable expectation of getting that money back again. The way banks decide whether to lend money to a start-up is based on the business plan that you’ll be expected to go through before they’ll even consider writing you a cheque so spend time making sure that you’ve covered every eventuality and have a plan in case things start to go wrong. The more preparation you do upfront, the easier it’ll be to secure the funds you need.

If you’re starting a business from scratch rather than buying an existing business or franchise (which you can do on www.businessesforsale.com and www.franchisesales.com) then, as there are no assets to secure the debt on, you may be expected to secure the loan on your personal property such as your house. This then becomes a personal loan for business purposes rather than a business loan, but will work in much the same way.

If you secure any debt on the company’s assets, this is called a debenture. You should read any documentation about signing a debenture very carefully as the lender may be able to force the company into insolvency to recover the debt.

If a bank loan isn’t going to be enough to kick start your business then you might also want to explore using other institutional debt such as your bank overdraft or your credit cards but be very careful when using too much of your own debt. Remember that you’ve still got to make your mortgage payments, pay your bills and feed yourself even when you are at work.

Compare online quotes for business loans and company credit cards

4. Venture capital, grants & business angels

If you’re not too keen on the idea of financing your business with your own debt then you might want to consider talking to a venture capital company or a Business Angel about getting them to invest in your idea.

Remember, a VC company or a Business Angel will probably expect to be given a fairly substantial stake in your company in return for their investment.

The benefit of using venture capital or a Business Angel is the experience and advice that they can bring to your business. Nobody wants to see their investment disappear down the drain so if they’ve got a stake in your company they are more likely to be able to help if and when things start to go wrong.

There are also a number of local and national government-backed grant schemes available to budding entrepreneurs. You can raise anything from a few hundred pounds to hundreds of thousands but there may be some non-financial conditions that you’ll have to meet, such as the type of business you can start, the industry you can operate in and the number of people you employ.

The Prince’s Trust also provides some grants to those under 35 years old for starting a business.

Good places to start are BusinessLink, the Chambers of Commerce and www.startups.co.uk for more information about this type of funding.

5. Leasing and factoring

Less a way to raise cash for your new business, more a way to reduce the amount that you need to borrow in the first place, leasing could save your business a lot of money in its first few years.

Leasing is basically borrowing the equipment and machinery you need to get your business going, without having to find the lump sum required to purchase it outright. You can lease just about anything, from fixtures and fittings for a new bar or restaurant to computers, office furniture, manufacturing machinery or commercial vehicles.

As well as reducing the amount of start-up capital that you need, leasing your business equipment (often referred to as Asset Finance) could help save you ongoing costs such as maintenance and repairs or upgrades. Imagine how much you would save if you didn’t have to worry about the cost of keeping your vans on the road or replacing vital pieces of machinery as they become obsolete.

Compare online quotes for leasing and asset finance.

Factoring is aimed more at companies who have just started up and can be an excellent way to keep your cash flow as liquid as possible during the first few months of your business operating.

Factoring basically involves selling the debts owed to you on your invoices to a factoring company. This means that you’ll receive up to 85% of the value of the invoices within 24 – 48 hours and the balance, less the factoring company’s fees, when your customer pays.

Compare online quotes for factoring services.

They key points to remember when you’re looking for the funds to start your own business are as follows;

1. Make sure your business plan is well thought out, well presented and, most of all, realistic.
2. Most sources of funding, whether it’s friends and family, banks, venture capital companies or a Business Angel, will want to see that you’re taking on some of the risk yourself. Nobody wants to feel that it’s only them that are at risk of losing their investment.
3. Spread your debt around between a number of sources. The more people you can get involved in your business, the more advice and expertise you can call on, and there’s always the possibility of extra funding if your business does well.
4. You may have to sell a stake in your business to secure the funding you need. Don’t be afraid to go down the ‘Dragon’s Den’ route of funding. If your creditors have a stake in the venture, they’re much more likely to help you out of trouble than see their investment disappear.

Most of all, if you believe you have a good idea then make something of it. Don’t be knocked back if you can’t find the funds you need immediately, there will always be another option open to you.

And if the worst comes to the worst, buy yourself a lottery ticket and ‘Think Lucky’…

Finance for your business

Use the links below to find the best deals on business finance.

Business loans
Commercial insurance
Factoring
Invoice Discounting
Leasing & Asset Finance
Commercial mortgages
Credit cards
Business banking