So you have an idea, well more than an idea, you have a plan, and you are absolutely, definitely, going to set up your own business. No more slave to the man, no more selling your soul to the corporate world, you are wildly enthusiastic and accelerating rapidly towards the own business event horizon!
The first hurdle that causes a stumble is the business of getting your hands on start-up capital.
Here are some suggestions for routes to get your hands on the kind of money you need.
Before you consider any of these options please work out your budget, no bank or easy business funding angel or grant scheme or loved one will consider coming up with money for someone who has offered a few guestimates on the back of a fag packet. Work out your financials properly, get advice if necessary and definitely add a contingency – then go cap in hand!
- Sorry, but it may be you! – Personally I wouldn’t put any money into a business that the owner hadn’t felt confident enough to put some of their own cash into. So its time to cash in those ISA’s and sell the premium bonds. Other People’s Money may be the way big business likes to manage risk but for the newly self employed it’s your own money you need to put on the line first and foremost. You won’t be taken seriously unless you are prepared to venture your own cash.
- Off to the bank – even in the midst of a credit crunch we have to approach the banks first. Banks make money from the money they lend not the money they hoard (ha! In theory!), and so credit remains available but the terms may not be so favourable. A bank will always seriously consider a business start-up that comes to them with a professional proposal with sensible financial forecasts and with owners that have good CV’s with relevant skills. Even so they will be looking for loan guarantees in terms of assets so don’t be surprised when they want to get their mitts on the title deeds to your house. A good business banking manager is looking for start-up businesses to support as this reflects well on his/her career so definitely approach the bank first once you have your business plan in top notch form.
- Government Grants – depending on where you live there are a vast number of grants available. For those starting business’ in areas that can access European funding there is a lot of money around for everything from research and development to job creation. In the rest of the country there are small business funds that can act as guarantees for bank start up loans if you have no assets yourselves. It is kind of a chicken and egg scenario, the bank will look for favourably on you if you have grant aid and the grant funds will like it if you have some bank funding and they have to make up a shortfall rather than provide the whole thing. Good advice from a local business trust can guide you through the processes and advise on who to apply to first and why. Remember, a single business plan will not cut the mustard with all the places you will need to use it, so small alternations may be needed to the plan when you use it to apply for grant aid.
- Re-mortgage the house – this is where, frankly, most people find their start up funds. Back in the good ole days of readily available credit if you had serious equity in your house (40%+) then you could pretty much write your own cheque on a remortgage, the money would be available to you, but now ability to pay is more strictly enforced so you will need to go to a mortgage broker and run the figures. If you share your home with a partner you need to discuss the implications of a remortgage really, really seriously.
- Business Angels and Venture Capitalists – since Dragon’s Den burst onto our screens the world of Business Angels has become a lot more mainstream. Previously the average small business would never even have heard of them! Now they are springing up all over the place and like most band wagons that get jumped on there are good and bad examples. We’ll speak more of this in other articles but basically business angels are looking for high potential businesses that may pose too much of a risk for a mainstream bank. For capital injections they will be looking for a share of your business and they will be looking for a fast return on their money.
Imagine being able to triple your customer base in a week, or open the doors to your new business with a line of customers already waiting to buy without spending a penny!