Starting a Business Step 5 - Finance
Most businesses require finance when starting up. Finance is often required to fund premises, machinery, equipment, stock, parts, employees, advertising and day to day expenses like stationary, bills and fuel.
Types of finance
Short term - to cover things like buying stock or keeping things ticking over during the first few months. These include:
- Overdrafts - where the bank will allow you to overdraw on you account up to a specified limit.
- Trade Credit - where your suppliers will allow time to pay for goods after you have received them
- Factoring - where you sell your invoices to a bank
Medium term (typically 3-5 years) - to cover capital expenses such a machinery or vehicles. These include:
- Loans - where you borrow money from a bank or investor
- Equity Finance - where you sell a portion of your business to an investor.
Long term (typically over 5 years) - to cover major expenses like premises. These include:
- Commercial mortgages.
Establish the need for finance
Ask yourself the following questions.
- Why do I need the money?
- How much do I need?
- How long will I need it for?
The answers to these questions will guide what sort of finance you need.
Where to obtain finance
As well as banks, there are many alternative ways of raising money to finance your business. To find out more click here.
Before applying for finance, ensure your business plan and monthly management accounts (if you have any) are up to date with relevant management information.
There is a strong probability that you will need a combination of financing streams to achieve what your business needs.
Seek an adviser, mentor or coach to review strategic options and support throughout the funding process.
Below in the Useful Links section you'll find a link to Growth Hub Providers who can advise you on funding along with links to other organisations that can help fund your business.
The video below from the Business Support Helpline will help you decide on what kind of finance is right for your business.
Due diligence, secure funding and on-going review
Funders are likely to test and review the key assumptions of your business plan and forecasts to assess risk of repayment.
If your application is declined, request feedback, seek advice and review your business objectives before resubmitting.
Once secured, on-going review of financial performance is required to ensure compliance with key terms and conditions of the funding.
The video below from Innovate UK offers good advice on how to pitch your business to investors.
Growth Hub providers – help on obtaining funding.
Growth Hub - different types of alternative funding.
Business Finance Guide – a useful guide covering all aspects of business including advice on starting a business and funding.
Start Up Loans - offer government backed funding to enable you to get your business idea off the ground.
Business West Virgin Start Up Loans - Support for your business is crucial. Your business may be eligible for Business West’s start up loan scheme in partnership with Virgin Start Up.
British Business Bank - publishes a useful guide to finance options for start ups, SMEs and growing mid-sized companies.
Good Finance – provides individuals, businesses, charities and social enterprises with information to enable them to find a funding and loans from a CDFI (community development finance institutions).
Mentor SME – offers businesses access to a list of quality-assured business mentoring organisations across Britain.
Business Banking Insight – offers a helpful comparison of a range of services offered by different finance providers.
Innovate UK - offer support if you need to invest in the development and research of new technologies to support your business to grow.
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Growth Hub engagement officers can offer you up to 12 hours free advice and assistance. If you would like to contact the Growth Hub team or arrange a call back to discuss starting a business click here.