Top 10 ways to finance your small business

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. 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 you 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 is one avenue that many of you are forced to face.

7 Bank Loan

Bank loans are a very widespread 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. Princes Trust
http://www.princes-trust.org.uk/

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

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 taking 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.