Choose the Financing Method That is Right for You
There are more ways than you might think to get a business off the ground. Get some professional advice and weigh up all the options.
There is plenty to think about when you are looking to start a new business, but one of the most fundamental aspects is financing. In this age of choice, there are more options out there than ever, each with its own pros and cons and aimed to meet specific needs.
The south east of England has seen thousands of start ups over the past decade, so business finance brokers in Essex know more than most about what is on offer. Here are ten funding methods you might want to consider.
1) Personal / family finance
Sometimes the old fashioned approach is best. If you have money in the bank with which to finance your start up, that’s great. And if family are willing to stump up, that will always be cheaper than going to a financial institution. Take a professional approach, draw up a loan agreement and make sure the payment terms are fair and achievable. The last thing you want is for your business to lead to a family dispute.
2) Start up business loan
This is a government initiative in which new businesses can borrow up to £25,000 at a fixed interest rate of six percent. It’s a highly flexible product, and there are no penalties for early repayment. You will also get support with putting together your business plan and cash flow forecasts.
3) Business loan
If your business has been operating for more than two years, the start up option will be no help to you. However, there are a range of other business loans available through banks and specialist lenders.
4) Invoice financing
If customers are slow to pay, invoice financing is a highly effective way to improve cash flow. The lender pays a proportion of the invoice, typically 80 percent, straight away, and the balance, minus its fee, when the customer pays up.
5) Commercial finance
This is a whole sub-stratum of financing. There are numerous different types of commercial finance available, depending on the amount needed and the creditworthiness of the borrower. This is an area in which it is worth getting a finance broker involved to find the best deal.
6) Asset finance
A business that is asset rich, for example one that owns large amounts of plant, stock or vehicles, can use the value of these assets as a guarantee to raise finance.
7) Secured finance
This is a variation on the same theme, but in this case, the finance is secured against property or assets that might be privately owned by the business owner or owners.
8) Unsecured loans
Not every business or business owner has property or assets with which to guarantee finance. Or you might simply prefer not to put these assets at risk. An unsecured loan does not require this type of collateral. It will, however, look closely at you and your business to assess the risk.
9) Merchant advance
If your business accepts card payments, you could be eligible for a merchant advance loan. This is similar in concept to invoice finance, but is based on the projected monthly takings via the PDQ machine.
10) Revolving credit
Finally, it is always worth exploring a revolving credit facility. This is essentially a cash flow loan, whereby the lender extends a set credit line that you can use as and when you need it. It’s a little like a bank overdraft, and is a great safety net to have, just in case.
Speak to an independent lending broker first to learn what type of loan is best for you and your business.