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How to Finance a Company - The Options available
The first step is to determine your financial needs, which include your startup costs and running expenses.
It is best to schedule enough capital for trading for 6 months with the eventuality of not being paid by customers straight away.
Financing your business can be a combination of several options:
1. Savings / Personal borrowing
2. Family & friends
3. Outside investors
4. Bank loan
5. Grant
6. Other Source of finance
Savings / Personal borrowing
This is the easiest and most likely option for anyone starting a new business. You will have to plan and spend very carefully as your own money is at stake. It should however gve you greater rewards should the business succeed. There are several ways to get personal finance:
Mortgage / Remortgage
Private loan
Credit cards
You could even sell some personal possessions
Family & Friends
There are two possible options in that case. They could simply lend you some money or buy shares in your company. You will have to consider this option very carefully as it could put a real strain on your relationship should your business struggle.
Outside Investors
They would usually give you money in exchange for a share in your business. You will need a strong business plan to secure such type of investment.
Bank Loan
Banks tend to need a lot of reassurance before they are ready to lend you money.
- The more money you already have invested in the business (via personal means, friends, family or outside investors), the more likely is the bank to lend you extra money.
- A thorough, credible business plan will help the bank (and any investors) understand how your business will make money, and therefore how the bank will recoup its money (& interest!).
- Your own track record. Any investor (including banks) invest in the person as well as the business. It is therefore important to prove that your skills and experience will be a great asset for the running of the business.
- Security. Banks will want you to provide some form of security, should the business fail. It may ask for business assets or personal guarantee.
Grant
A grant can take three forms:
- Outright cash
- 0% interest loan
- Subsidised loan
There are very specific criteria to meet before being eligible for a grant. However, due to their nature and attractiveness, there is fierce competition throughout the application process. You are therefore very likely to spend a lot of time and effort applying and be unsuccessful.
You will of course need a credible and viable Business Plan if you want to stand a chance succeeding.
Other sources of Finance
There are also other sources of funding available to specific projects or groups of people. There are for example finances aimed at women, deprived areas or ethnic minorities.