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Small business loans grants and finance

For informational purposes only: Please professional guidance from a qualified accountant, corporate financier or other qualified professional. Registration with the FSA is compulsory to give credit or Mortgage advice.

Most start up business will need capital for:
  • Equipment/tools
  • Stock
  • Business premises, furniture
  • Computer equipment
  • Marketing and publicity
  • Legal and accountancy fees
  • Insurance
  • Stationary
Working capital will also be needed to pay bills and keep running until sales happen and money comes in. Cash flow seems simple.
  • Make sales
  • Invoice customer
  • get paid
However, the time it can take to get the money in must not be underestimated. To ease the cash flow, establish acceptable credit terms with customers and suppliers. If customers pay before the supplier needs to be paid well and good. But it is hard to get credit extensions from suppliers until you have a good trading history with them.

Finding Finance Has Many Options
  • Finance yourself with savings or mortgage/remortgage your home.
  • Borrow from family/friends
  • Overdraft or loan from financial institution
  • Equity finance from investors, who will want a share of you company most likely.
  • Asset finance such as hire purchase or lease agreements.
  • Factoring and Invoice discounting.
  • Grants or government support.
The right option is for the individual to decide with the help of a professional adviser. here are some guidelines to consider:
  • Consider equity finance if you are financing and can't commit to regular repayments.
  • Consider an overdraft or factoring for working capital.
  • Fixed term loans, leasing, or hire purchase are good for equipment or vehicles.
  • A commercial mortgage for property.
Business Plan
Convincing people to commit money into your business takes passion and belief. They need to feel they won't lose out. A properly constructed business plan is very important. Realistic estimations of costs involved in running the business as well as of income the business will receive needs to be stated. See article on business plans for more information.

Debt Finance
Overdrafts, credit cards and loans are all primary types of debt finance. Mostly provided by high street banks that have teams and products for business customers.

These are the most popular form of business finance. Easy to set up, and often cheaper than loans as interest is only payable on the amount used. Usually overdrafts are agreed to for a period of 6-12 months, sometimes longer. The trap can be the bank has no obligation to extend it any longer than first agreed and can ask for repayment at anytime. Probably best used for temporary cash flow needs.

Credit Cards
Business credit cards are another option. Also easy to obtain, and you can use them as you choose. Very convenient for short term needs. Purchases and repayments need to be managed carefully. This is the most expensive way of borrowing.

Sources for business credit cards include
The American Express® Business Gold Charge Card

Usually granted for a fixed term, possibly at a fixed interest rate, and repaid in monthly installments. Shop around for the best deal and don't sign until you understand all the terms and conditions.

A bank will usually require some security for monies lent. This gives them an avenue to recoup money should repayment fail. Look for lenders who participate in the DTI's Small Firms Loan Guarantee scheme. Run jointly by the department of trade and Industry (DTI) and participating lenders they lend money to start up business. This helps businesses without a track record or business assets access business loans. The DTI guarantees lenders up to 75% in the case of non-repayment. Lenders are charged 2% on outstanding balance for the guarantee.

Other Sources For Business Loans
Decision Finance –Business Loans, Commercial Mortgages
Zopa loan exchange –Brings borrower and lenders together.

Equity Finance
A medium to long term finance option from outside investors. At times, they also offer business expertise with the finance, in return for a share of the business. Mostly provided by specialist venture capital companies and Individuals who are wealthy and known as business angels. These investors primarily want to make a profit on the investment. Family and friends can be investors but do make sure contracts are drawn up and signed.

Venture Capital Firms
All investors are in business to make money. They will look for business with high growth potential, strong management and robust, realistic ambitions. If your business plan is in good shape, it increases the chance of venture capital firms investing with you. These firms may be more committed to the success of the business as the risk is shared and they make money only if the business succeeds. Usually there is a 5-10 year development plan with an agreed exit strategy. This might be a trade sale or flotation allowing the firm to realize a return on the investment.

Business Angels
In the same manner as a venture capital firm, wealthy individuals can get on board as investors. They do want to see a return on their investment, but unlike firms they do consider smaller investments tending to get involved at an early stage of development.

An online resource used for bringing business partners together can be found at Company Partners.

Enterprise Investment Scheme (EIS)
This scheme was set up to assist some types smaller, higher-risk unquoted trading companies to raise capital. It provides a range of investor tax reliefs by way of qualifying shares in these companies. Enterprise Investment Scheme

Regional Venture Capital Funds (RVCF)
These programmes are England-wide. Providing a risk capital of up to £500,000 to SME's showing growth potential, learn more about them here Regional venture capital funds

Asset Finance

Leasing and Hire Purchase
Forms of medium-term finance allowing business to use an asset for finance. This is for a fixed period of time in return for agreed regular payments. These arrangements may be used to acquire a wide range of assets. Plant and machinery, vehicles and IT equipment are most likely, and no additional security is needed as equipment can be repossessed if payment fails. Terminating agreements early can be costly on the medium to long-term commitments.
Leasing and hire purchase

Factoring and Invoice Discounting
These methods provide finance in the form of advanced payments, usually about 80% against unpaid invoices. A factor will take charge of the sales ledger and collect payments from customers. An invoice discounter lets the business operator to retain control. This type of service can increase the cash flow and improve credit control processes. Do chose a reputable firm and be satisfied customer relationships will not be damaged in the process.

Specialist freelance companies generally offer this option for example Decision Finance
. Many of the banks do as well Lloyds TSB.

Grants and Funds
This topic has some interesting facts. You can read in full at J4B – the UK's leading grants website.
4500 grants and financial programmes are available to UK organizations. The value available to them through grants is £50 billion. There is £2.7 billion remaining unallocated and available for good causes.

Financing may be an option via a number of grants schemes including:

Research and Development
This is a DTI initiative helping individuals, as well as small to medium sized business. This grant is provided to research and develop technologically innovative products and/or processes.
Learn more here Grants for research and development

Investigating an Innovative Idea
If you business idea is innovative it may qualify for a grant from the DTI. The aim of the 'investigating an Innovative Idea' grant product is to help business based in England, with less than 250 employees, develop ideas. If awarded the grant they get to work with external experts.
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