Raising finance for business start-ups

Home

Members

Services

News & Info

Entertainment

Help

Content Starts Here

Raising finance for business start-ups

Search: Find a business credit card

Why should you read this guide?

If you are about to start a business or have just started then you may need money to get you started. Finding someone willing to lend to a new business is difficult. This guide will give you a few ideas on where to look.

Background

It is notoriously difficult to raise money for business start ups. There are many tools available to help with this but in the main start-ups are usually viewed as too risky. One of the main problems is that there is obviously no track record for a bank to take into account when deciding whether to lend or not. As the business does not usually want to borrow much money it is easier for the bank to say no as they will not lose much in the way of income. There are however a number of ways to obtain money when starting and some of these are described below.

Bank

As mentioned above the banks do not necessarily like business start-ups and tend not to lend money to them. There are a few ways that you can increase your chances of obtaining money from banks though:

Approach your existing personal bank if you have a good relationship with them
Provide them with a good business plan and cash flow projections that show you need the money from them
Do proper market research and get orders if possible - letters of intent to help you at the least
Remember the bank are interested in getting their money back so you need to show them how this will be possible and be willing to offer security
They will only ever give you a maximum of 70% and you will need to show that you have the other 30% from non-borrowed sources.

Friends and family

Sometimes this is a very difficult source of money but in others it is very easy. Do you know anyone in your family that would be willing to back your business idea? You may need to offer them part of any profit or even bring them in as a shareholder. These loans tend to be cheaper than commercial loans by way of interest rates but can often cause relationship problems.

Government grants

There are often grants available in your area for specific types of business. Young start ups may also be able to qualify for funding through the Princes Trust Business Programme.

Asset finance

If you need the funds to buy an asset e.g. a van, then often you can use this asset to raise the money against. This is a less risky option for the lender as they would take the asset back if you were unable to pay.

Bootstrapping finance

Basically this is the act of doing something else to raise the money required for the project. If you are not able to raise the money required to start the business then look to do something on a smaller scale to help raise the finance. If this smaller project is related to the larger one then you will gain some valuable knowledge and experience when doing this. This will also stand you in good stead to raise money from the bank once you have some funds yourself.

Summary

Business start-ups are difficult to finance but that should not stop you. If you believe your idea is good enough and it can make you money then you will be able to find a way to finance it.

Further information

Speak to a local business adviser for direction on this. You can also speak to your bank manager who should come up with some ideas if they are unable to do it themselves. Check out www.princes-trust.org.uk or www.psyby.org.uk if you are in Scotland.