Even in the current economic downturn many businesses are starting up and others are spotting new opportunities for growth. To get a start up, or a new project off the ground quickly a business will often need to borrow money.
If you were to just listen to the news reports you’d be forgiven for thinking that finding finance to run, or better still grow, your business was an insurmountable task at the moment. If you have a project you need to get off the ground then finding the backing shouldn’t be a big hurdle with the right preparation and knowing where to look.
The Business Case: You should expect to be asked for a robust business case, and that seems reasonable anyway. It can be a good exercise to sit down and build your business case from scratch – you will often have to face up to minor niggles and inefficiencies that you have got used to living with on a day to day basis, but when put on paper you realize that you have to do something about them.
You will find plenty of tutorials and samples online that you can base your case on. Your bank should be able to help too. But if you are looking to raise a considerable amount of capital it might be worth employing a professional to write your vision in a way that will appeal to the potential financier.
Borrowing money, the personal loan: If you haven’t been in business long, or you are just about to set out into the scary but exciting world of being self employed then you might need to borrow money from friends and family to help you start up.
An alternative could be a personal loan from the bank. You could even use your credit cards to raise a small sum – but if you do be most conscious of the interest rate you are likely to pay, and the fact that drawing cash on a card results in immediate interest charges.
If you have some wriggle room in a mortgage it could be cheaper to borrow back up to your loan limit – or perhaps have a word with your parents about doing just that.
The business loan: If you have been in business for a while and you can provide healthy accounts than you should be able to arrange a business loan from your bank. While it may be a little more expensive than a personal loan, remember that the finance charges on a business loan are usually tax deductible.
Likewise if you own your business premises then it might be worth considering a business mortgage on your premises, or an alternative is a sale and lease back of the land, or perhaps some of your longer life assets. With a sale and leaseback deal you retain the use of the asset, but you realize its value in a lump sum. In return you pay a monthly lease for its use including an interest payment which is usually tax deductible.
Invoice Finance: Many businesses find that while their turnover is good, they have a problem with creditors taking too long to pay their invoices and this leads to a cash flow problem. A potential solution is an invoice finance arrangement that releases much of the value of the invoice back into the business for a small fee, or interest paid on the amount financed. The service can often be discrete if the business doesn’t want its customers to become suspicious that the business might be in trouble. Although in actual fact so many businesses use invoice finance, or factoring as it’s often called that it is just considered good business sense. You can talk to an independent factoring broker to find the best deal from a lender experienced in your market.
Don’t let a lack of funds hold you back. If you know what you’re doing and can demonstrate a healthy potential for your business then you should be able to raise the capital you need to grow.
