Top 11 ways to finance your small business


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We look at the best ways to obtain funding for your small business venture.

1. Forward profit generation

This is the most widespread and safest way of funding a business venture. Put simply, you sell something, make a profit, keep the profit in the business and use the profit to fund the next phase of the business. This should help to ensure that your business is always profitable. It means that your business cannot easy over-expand and that growth is controlled.

It is low risk and means that if your business fails, you do not end up losing your house. It also means that you do whatever you can to keep your overheads as low as you possibly can.

2. Savings

Many people use part or all of their savings to keep them going. While they do not put their savings directly into the business they live off their savings, while not drawing a salary from the business.

3. Redundancy payment

Many people use their redundancy cheque to fund their business. It’s what I used to keep things going while I was getting the business going.

4. Credit card

The credit card represents one of the fastest ways to fund your business venture for the new computer or buying stock. You have between 28 and 42 days interest free which you can use to manage cash flow. Try to avoid interest charges as the interest rate can be crippling.

5. Family, friends and fools

The classic way of funding a small business was from family, friends or fools.

Of the three, family is often a good way to help you get going. They can help with the early phase and tend to require only a high level overview of the business.

6. Second job

You have another job, or your partner has a job which supports you financially while your business gets up and running. The obvious downside is that if you are working, you will not be able to devote all of your time to the new business, but this is one avenue that many of you are forced to face.

7. Bank loan

Bank loans are a very popular way of getting your business going. These could take the form of either a personal loan or a business loan. In many ways these amount to the same thing as most business loans require that you put up some personal security (often your house or business premises) before they will lend to you.

Though it is very widespread, the bank loan is personally my second least favourite option.

8. Business Angels

Business Angels are wealthy individuals who can invest in your business. These can be the types of people that you see in the Dragons’ Den TV show. They can often offer reasonable levels of business help. However, once they have a financial stake they can tend to interfere in your business plans and take valuable time to manage. Typical investment levels can be around £120,000.

9. Prince’s Trust
http://www.princes-trust.org.uk/

The Prince’s Trust Business Programme provides money and support to help people start up in business. You must be:

  • aged 18-30
  • unemployed or working less than 16 hours a week
  • living in England, Wales or Northern Ireland.
  • Help available

  • A low interest loan of up to £4,000 (up to £5,000 for a partnership)
  • Ongoing advice from a business mentor
  • A grant of up to £1,500 in special circumstances (subject to local availability)
  • A test marketing grant of up to £250 (subject to local availability)
  • 10. Government business grants

    This is the least favourite of all my ways of funding your business. Bodies like Business Link claim that they can help you access small business grants, which on the face of it sound like free money. The problem is that they can be almost impossible to obtain, can take up lots of valuable time leading you up a dead end, and then only provide you with half of the money that you require.

    11. The Small Firms Loan Guarantee scheme

    http://www.businesslink.gov.uk/bdotg/action/detail?type=RESOURCES&itemId=1074447105
    A government-backed scheme if you are unable to obtain a conventional loan because you do not have assets to offer as security. The Small Firms Loan Guarantee (SFLG) helps to overcome this by providing lenders with a government guarantee against default in certain circumstances.

    The main features of the scheme are:

  • a guarantee to the lender covering 75 per cent of the loan amount, for which the borrower pays a 2 per cent premium on the outstanding balance of the loan
  • the ability to guarantee loans of up to £250,000 and with terms of up to ten years
  • availability to qualifying UK businesses with an annual turnover of up to £5.6million
  • What have been your experiences of financing your business? Leave your comments in the box below.

     

    Published On: 7th Aug 2008

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    Finance

    18 Comments
    1. Personally I think that financing a business from the profits that it generates is the best way to grow a company

      jontypearce 11 Oct at 4:38 pm
    2. Clean out your attic, or ask friends to donate articles for a car boot sale

      Anonymous 17 Oct at 9:48 pm
    3. Factoring is a really good way to finace your business but only if it is steadily growing

      Anonymous 6 Jan at 2:30 pm
    4. We asked HSBC for a government guaranteed loan, as we are a small restaurant victim of the credit crunch, operating only for two years. We feel that it is all words but in reality there are a lot of businesses like us who need help most but are not given this help as banks are bloking this help from the government…

      Anonymous 10 Mar at 12:33 pm
    5. There is always the good old fashioned method of asking customers for donations. That is if you are providing a service to the local area, then people wouldnt mind as much. However it may be harder if you are some sort of salesman (no offence)

      Anonymous 3 Apr at 12:17 pm
    6. Contact the Federation of Small Businesses (FSB) they will give you invaluable help, and point you in the direction of discounts and freebies as well as sound business advice.

      Norah Mooney http://www.inspiradiation.vpweb.co.uk

      Anonymous 17 Aug at 10:27 am
    7. my experience small business do’nt get any help with no one, mean the council government.

      Anonymous 24 Sep at 1:46 pm
    8. use a small percent of your income £5-£10 a week buy small items that everyone uses daily that way you can allways sell them for a small profit, dont buy big too quick or you might end up with major losses.

      Anonymous 8 Oct at 7:18 pm
    9. use a small percent of your income £5-£10 a week buy small items that everyone uses daily that way you can allways sell them for a small profit, dont buy big too quick or you might end up with major losses. madasabiker

      Anonymous 8 Oct at 7:19 pm
    10. im a mobile beautician, started of going to friends and family. Then was introduced other clients through friends and family. Saved the money I made mobile, now I have a small salon and hopefully when I start making more profit can get a bigger establishment. My advice take things step by step do not rush or you will end up in financial problems.

      Anonymous 11 Dec at 1:50 am
    11. I wish there could be a financial plan for South African youth who have a great promising visiön to start a business, with nothng stand insurity for their loan’s applications.

      Anonymous 17 Jan at 10:15 pm
    12. Factoring or invoice discounting can be a great way to improve your cashflow business. My colleague Josh Hall wrote an article about the advantages of factoring.

      Anonymous 19 Jan at 5:04 pm
    13. You can earn additional income via your website with Google ads and affiliate marketing. It doesn’t take much effort or time once you get the hang of it and can help to top up your business account. I use the income to keep my CPD up to date.

      Shelagh

      Anonymous 25 Jul at 2:00 am
    14. plough back profit;the profit made from your business is put back in to the business

      Anonymous 29 Sep at 7:50 pm
    15. Despite all the talk, the fact is that practical financial help is almost the ipossible dream

      Anonymous 18 Nov at 8:45 am
    16. add free advertising to gumtree under community chest, may take a few attempts but after my 4th free add, I got a customer, which for £200 is not that bad for a total of 30 mins work.

      Anonymous 23 Nov at 3:29 pm
    17. Get a book keeper for 2 hours a week to ensure your finances are kept in order, so you don’t completely stress when your tax returns are due. It’s a healthy investment

      Anonymous 25 Nov at 4:01 pm
    18. we have tried for help but more or less told we need 50% in the bank to get the other half in funding good if its only a small amount but if its £80 thousand how can a small company come up with £40 thousand ,the funding is a shambles if your a Scottish company and in that i mean a company owned by Scottish people guaranteeing 20+jobs in 3 years

      so dont go expecting help if you need thousands unless you have thousands in the bank.

      Anonymous 27 Nov at 4:01 pm
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