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Funding a New Business

Funding

Are you fully aware of what your start up and initial running costs will be? How can you fund those costs? There are a number of possible sources of funding.  

Private Borrowing

You might be able to borrow from friends or family (possibly on better interest terms than a bank will offer). They might instead agree to provide funds as an investment in your business and receive a share of the profits, rather than repayment of a loan to you. You will need to consider what might be the effect on personal relationships if you cannot repay the loan or if the business does not produce profits, or worse still fails altogether.

Bank Loan

Your bank might provide a business loan but it is likely to require some form of security, for example, your house or, if your business is already trading, some business asset. Banks may also offer a pre-arranged overdraft on your business account.

Credit Card

You might obtain some funding by means of credit provided on a business credit card, but such a facility should not be used for long-term borrowing due to the high interest rate that will apply. Some card companies offer an introductory interest free period on a new business credit card.

Private Equity/Private Finance/Venture Capital Funding/Crowdfunding

There might be some finance available from a private equity investor (i.e. a third party investing in shares in your business for a share of the company), but for them to take up shares, you would need to operate as a company, not as a sole trader. Alternatively, you might seek finance from a venture capitalist who injects finance in exchange for shares, but this will entail giving up some control of your company to that person. A business angel might offer funding (i.e. private finance investment in a start up business). Another possible source of funds might be crowdfunding.

Public Funding

Funding through a Government initiative, e.g a loan from the Business Enterprise Fund (British Business Bank) to assist a business start up, might provide funding, but you would have to meet the criteria for eligibility for any Government initiative and it might be a long process to obtain funding. Some initiatives offer match funding (i.e. you provide 50% of the necessary amount and the government matches it). Some other organisations might also offer financial support, e.g. an enterprise agency set up to develop business in a particular area of a region, typically an inner city. A charity organisation might provide funding if you meet certain criteria, i.e. for particular groups of people helped by that charity.

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