Finding the money to start a business

There are many ways to fund a business, and each has its own risks, advantages and disadvantages. Atkinson Accountancy has a unique perspective on this aspect of business, its Managing Director being a banker, corporate financier and accountant. Below are some of the ways we can help you secure funds for your company.

Grants

The first place you should look for funding is via a grant. There are many different types of grant, but many are difficult to get so you will need to do your homework and prepare a good business case. Your local Business Link can help with information on the grants you might qualify for.

Using your own assets

If you have capital such as savings, or equity in your home or pension, you can use these to finance your business. If you want to raise funds from a lender, they may want to see you invest your own capital first.
Be very careful when using your home or other essential asset to finance a business. By taking out additional funds on your property you will be required to pay back more in the way of interest, which, should your business find itself in cashflow difficulties may mean you default on your mortgage payments, ultimately resulting in having your house repossessed. Consider what the loss of your property would mean to you and your family, and build mortgage repayments into your business and financial plans. Losing your business is bad enough, but losing your home is heartbreaking. Protect yourself with insurance and seek professional financial advice before releasing equity.

Borrow the money from friends

Many people fund their business with goodwill loans or investment from friends or family. It’s a great way to secure capital and could mean a nice return for them in interest or dividends when your business blooms.
However, you cannot risk personal friendships and relationships over something like money, so protect your interests and theirs with proper documentation, outlining how much you are borrowing, under what terms, and how much interest is payable. If necessary, seek professional advice to help you draw up this document so all parties are aware of the terms of the deal.

Ask your bank

There are two ways to borrow from a bank: overdraft, or loan.
An overdraft is a quick fix if you are in a tight spot financially. The bank will let your business borrow a fixed amount without notice and you pay interest daily. The advantage is that you only pay interest on what you borrow, so you can use it as a flexible cushion for difficult periods. However, it is an expensive way to borrow and should not be used as a long-term financing option. Overdrafts usually last one year before being renewed. The bank often have the right to withdraw the overdraft at any point which means your business could be at risk if over-reliant on an overdraft
A bank loan is an excellent way to raise capital if you can offer security. Be very wary of how a bank structures these loans, and the terms of the loan as you may find a nasty sting in the tail later down the line (be sure to ask us, or your current accountant about the joys cross-default clauses – if they can’t answer you, come and ask us – this is a critical aspect of bank financing that you really need to be aware of)
However, if you can prove a steady cash flow, your bank may offer you a small unsecured loan, but you will need to make the monthly repayments regardless of how your business is performing.

Credit card

Credit and charge cards are a flexible and convenient short-term method of paying bills or buying supplies, but can be a very expensive way to borrow if the full balance is not paid off monthly. You are likely to write fewer cheques, which will reduce your banking charges, but the APR of most credit cards means expensive interest repayments if you can’t meet the whole amount.
Credit cards do offer you a certain amount of protection when you buy items.

Business angels

A business angel is a private individual who is willing to provide funding in a small business in return for shares in your company (and therefore a share of the profits). Many business angels are a great source of wisdom and business knowledge and are more like an informal partner than an investor. To consider your business attractive, they will want to see a comprehensive business plan and evidence that your business is viable.
Talk to your local Business Link for more information on how to attract a business angel.

Find a venture capitalist

Venture capitalists (VCs) are professionally-run fund management companies who invest in your company in return for shares and a say in the running of the business (usually in the form of a seat on the board).
Investors demand hefty minimum returns of between 30% and 40% per annum over five years and will be looking for new opportunities in proven markets, so you need to ensure your idea is a viable and dynamic one.
They typically do not invest in ‘lifestyle businesses’, but are looking to get in at the ground level with new and exciting businesses with large growth potential.
Their terms and conditions can be complicated and onerous. Should you be seeking VC funding you are very very strongly recommended to seek the best professional advice you can afford

For information of users: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.