More than 500,000 people in the U.K alone Start a Business every year.
World wide the amount of people starting a business runs into the millions and is growing by the day. Everyone has a different reason for wanting to start their own business including:
- Being a natural entrepreneur who has a product or idea to sell to the masses
- An individual wanting to become their own boss
- Someone wanting to have more flexibility
- Someone being forced to start a business due to becoming unemployed.
However, regardless of what type of business they start, most people will need to get funding to get their small business off the ground. Knowing where to get money from to start your small business can often be the hardest part.
Below are 5 tips on the best ways to get small business funding:
1. Have A Good Business Plan
One of the most important things to have in place before applying for finance is a strong business plan. A good business plan should be no longer than 10 pages of A4 and should include:
- The product or services that you are going to provide
- The cost to make or buy that product
- The operational costs including rent, staff, fuel, vehicles, stationary, materials, legal fees advertising etc.
- The location of the business
- Who your targeted customers are going to be.
Most lenders say that when reading a business plan they are looking for good cash flow management, a strong balance sheet, a sound business plan and signs that the company is looking to develop and grow.
It is also important to calculate the exact amount of money that you want to borrow before hand as potential lenders do not favour people who ask broadly for some working capital without having worked out the actual sum of money that they require.
Lenders like to be clear about why you want to borrow the money and how you are going to pay it back.
2. Check If There Are Any Strings Attached
When borrowing money from a lender, make sure that you have any legal documentation checked to ensure that is complies with the Financial Services And Markets Act 2000.
Before entering into a financial agreement with any company, it is advisable to make sure that there are no strings attached. It is important to read all the small print and to be clear that you are 100% certain of any conditions that are attached to your loan. For example:
- Are you bound by a personal guarantee for the loan?
- What will the interest rates be?
- How much are the application and transaction fees?
- What will the renewal fees for the loan be, in case you will want to extend the loan
- Are there any penalty fees?.
When applying for funding for a small business it is important to be yourself. Prospective lenders will be assessing you as a person when they consider whether to lend you money. If you are trying to be something that you are not you will not come across very well. It is important to be confident but not overconfident. Be natural, as you will be ultimately trying to build up a relationship of trust.
It is also important to be open and honest about your financial background, as all potential lenders will check your financial history. Failure to disclose any previous debt will not only result in delaying the process but could also result in you being declined the loan. It is better to be upfront and honest from the beginning.
4. Look For an Investor
If possible try to offer to invest some finance yourself into starting your business, as it will show a commitment on your part too. If however you cannot find the money to invest into your company and you fail to get the required amount from a lender, you could consider asking an investor to Invest into your small business.
Investors who invest money into a small businesses, are often referred to as a “business angel”. Business angels act either independently or as part of a syndicate and have usually been successful business owners themselves. Some will solely lend the money whereas others prefer to take a more active role in the business, often taking a seat on the board. Business angels lend money on the basis that they take part ownership or a share of the business profits.
Business angels can be useful for providing capital for business start ups, offering valuable advice and also for the network of business contacts that they acquired over the years which can prove invaluable when starting your own business.
5. Check Out New Business Grants
Despite the current economic doom and gloom, there has never been a better time to start a small business. In order to encourage individuals to start a small business the government are now offering various small business grants to help get businesses started.
Below are examples of some grants currently available:
Enterprise Finance Guarantee (EFG)
Launched in 2009 and available until 2014-2015 the EFG is a loan guarantee scheme to help create additional bank lending to U.K. based small to medium businesses that are viable and lack security to obtain a commercial loan.
Provided that the business can repay the loan the government offers a guarantee for 75% of the loan. This is available for businesses with an annual turnover of up to £44m that require loans of between £1000 -£1 million and is repayable over a period of between 3 months and 10 years.
Regional Growth Fund (RGF)
This is a government fund amounting to £1.4b that operates across England from 2011-2014. The RGF is to support projects and programmes in areas and communities that are currently dependant on the public sector. Rounds 1 and 2 of bidding have now closed and is it not yet known when round 3 will open for suitable applicants to bid for a share of the remaining funds.
European Regional Development Fund (ERDF)
In England the ERDF is managed by the Department for Communities and Local Government. Around £3.2 bn of funding has been allocated to help various incentives between 2007 to 2013. It is designed to boost regional economies and can be applied for by contacting your regional ERDF programme team.
Export Enterprise Finance Guarantee (ExEFG)
The ExEFG has been designed to provide short term (up to two years) export finance to small to medium businesses that are viable and lack the security to export finance commercially. It is available to businesses with a yearly turnover of up to £25m who are looking for a short term export finance of between £25,001 and £1m. The government will then guarantee lenders 60% of each facility and the borrower will pay a premium.
Regional development Programme for England (RDPE)
The role of the RDPE is to help to develop rural businesses and to build thriving rural communities. There are various grants available under the scheme which is jointly funded by Defra and the European Union and runs from 2007 to 2013. There are also other government grants available for small to medium businesses in Wales and Scotland that are funded by the Welsh and Scottish Assemblies. There are no guarantees to succeeding when starting a small business. Sadly many small businesses fail in the first year. However even if you have the best new business ideas in the world , often the hardest part is knowing how to get funding for a small business.
If you struggle to find the funding yourself, it is worth looking into the options of ‘business angels’ or government grants to help you to get your new small business off the ground.
For more advice and information on starting a new business visit www.perfectprosperity.com
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