How should I fund my start-up?
Decisions regarding how you finance your business should be taken very seriously. This is one of the most critical decisions you will make at the start-up phase and in addition to exploring different kinds of financing, you need to spend some time learning about the pro’s and con’s associated with each type.

One of the Best
If you are under 35 and intend to establish you business in Leicester or Rutland you may be eligible for a business start up loan of up to £12,000 that is interest free for 9 years, but becomes repayable by equal installments after 3 years. Please contact us for futher details

Commercial Business Loans
Commercial loans are available to most small businesses and start-ups, subject to status. All the main high street banks, and a multitude of other lenders operate in the small business loan market. As with a personal loan, your business will borrow money and repay it over a pre-agreed number of months or years, at a fixed or variable interest rate.

Clearly, since the start of the credit crunch, many businesses have found it harder to source funding, and have found interest rates on loans and overdrafts have risen sharply in many cases. However, with increased pressure from the new Coalition government on banks to lend more, conditions should start to improve – especially as the main UK banks are now returning to profitability (August 2010).

Where to look for a loan
Most banks and building societies offer commercial loans. You should spend time researching the loans available rather than simply going with your current business banking provider. To avoid unauthorized lenders, make sure your potential lender subscribes to the BBA Lending Code.

Angel investment
Angel investment has grown in popularity as a means by which entrepreneurs secure early stage investment in their fledgling businesses. It is simply equity investment known as seed capital which is designed to fund you as you test the assumptions you are making in your business plan. It is high risk capital so the terms associated with it can be quite onerous, but it is naturally very welcome at a stage when you have no proven sales history which would prove the viability of your plans. However angel investment is not for everyone as giving away equity is far from ideal. If you do go down this route though be sure to gain Smart money i.e. investment from someone who can bring more to the table than just the finance. Ideally the investor will have a large network which they can tap in to so as to help you gain access to markets.

Investment from Friends and Family
Securing investment from friends and family. This is a very popular source of funding for entrepreneurs and has a lot of obvious benefits given the financing is not typically subject to onerous terms and conditions. However you need to ensure that these investors are fully aware of the risks, as it may be is a chance that they will not get their money back and hence should only invest what they can afford to lose. Given the very personal nature of the relationship you should only explore this avenue as a last resort.

Getting a business bank loan
Borrowing money from a bank to finance your business is a lot harder than getting a couple of grand to buy a new car or improve your home.
Banks have a number of tough rules that you need to know before you approach them for a loan.

Be clear what you are going to use the money for
You need to be able to demonstrate clear direction for your business, and exactly how the bank loan will fit in. That means a watertight business plan. Show how every single penny will be spent and what the expected returns are. It’s better to overestimate than fall short of the amount needed.

Banks will not be impressed by loan applications to pay your salary or “get you through a quiet patch”. Remember to keep your plans realistic. You don’t have to impress the bank manager, just show there will be a return on investment. A tidy and concise business plan is always useful to have.

Demonstrate the ability to repay
The bank will be keen to see what experience you have in your sector, and what kind of management team you have. Show that you invest in training and you are in this for the long-term. This all helps to give it confidence its money will be invested in people who know what they’re doing.

It will also want to see details of your cash flow and profit, and have proof that your business is growing. An accountant should be able to present your figures in the most appropriate way, please ask us for details

Remove the risk for the bank
Lending money is lucrative for banks, but fraught with danger. The costs of trying to get repayments from defaulters are high (especially during tough economic times). The more you can take the risk away for the bank, the easier it will be to get the loan, and you may even get better terms.

There are two ways to do this. The first is to put up some security – something you will lose if you cannot repay the loan. New businesses without assets may find this tough. And some banks won’t accept the items you are buying with the loan as security. Others will ask for personal security such as your house.

The other way to reduce risk is by putting in equity. Here you show good faith to the bank by loaning your own money to the business as well. This could involve you lending £1 for every £1 or £2 the bank lends.

Shop around
Don’t just think of the bank you already use. Look out for banks that are heavily promoting business banking at the moment, or have special offers on. Whoever you apply to will ask for trading records, director’s information (if you have a limited company) and will run a credit check on your business. Whichever bank you go with, remember to check the small print carefully.

Be prepared for loan covenants
Some banks may insist on a covenant to cover their loan. That’s a series of terms you must adhere to, or they will demand immediate repayment of the loan. Typically these are common sense conditions such as maintaining a certain level of insurance, keeping any capital purchases you used the loan for, and ensuring a good cash flow.

CAMPARI
Finally, here’s a good checklist to ensure you have covered everything before your appointment with the bank. Some bankers use the drink “Campari” for their list of requirements:

Character: Show you are a competent business leader with a good trading history in that sector and a sound management team

Ability: Show you will be able to repay the money

Means: Demonstrate you have the means and resources to run the business in a way the bank approves

Purpose: Be clear what the money is for and that you have thought it through

Amount: Demonstrate why you need that cash and how it will be spent

Repayment: Forecast your cash flow to show you can meet repayments

Insurance: Show you have removed risk from your business by taking adequate insurance to cover anything that could go wrong.