If you’re planning on starting a new business, you’re probably going to need to raise the necessary funds and finance to get started.
There are lots of options to consider, and some are better than others. Let’s take a look at some of them.
A bank loan is one of the most popular ways to finance a new business. You’ll have to convince your bank to actually give you the loan, though, so you’ll need to impress them with a professional business plan.
Most banks offer two types of business loans.
First are secured loans, which are backed up by your own assets. The bank has the right to seize these assets if you fail to keep up with repayments, but they are easier to obtain and interest rates are usually lower because the borrower incurs most of the risk.
Second are unsecured loans, which are not backed up by personal assets. This is riskier for the bank, so interest rates are likely to be higher. A good credit score, as well as a strong business plan, is essential to get an unsecured business loan.
Bringing in investors is another common method to raise funding to grow a business. In return for equity (a share in the business), they will provide funding to grow the business.
There are a lot of sources of investment, including venture capitalists/private equity, angel investors and, for larger businesses, the stock markets.
Your investors will want to see a business plan and receive regular updates on your performance. After all, this is their own money they are investing in you, and they’ll be looking for a return on their investment.
The thought of diluting your ownership of your business can be off-putting, but if it helps grow the company overall, you may get more money in absolute terms.
Crowdfunding is a particularly innovative way to access finance and can also act as a way to cultivate a community around your business.
You can start using this method on a crowdfunding platform, which enables you to make pledges and collect money from funders.
You can sell stakes in your business, offer goods or services in return for funding, share future profits or simply ask for donations. Depending on what you want to do and your position within certain communities, crowdfunding could be especially advantageous for you.
Revolving credit facility
A revolving credit facility is a line of credit arranged between a bank and a business. This comes with an established maximum amount, which the business can access at any time.
Such facilities are often structured with a cash sweep provision, which means that any excess free cashflow will be used by the bank to pay down the outstanding debt.
The borrower is only charged interest based on the withdrawal amount – a flexibility that makes a revolving credit facility particularly advantageous as it really is there as and when you need it.
Mayflower Accountancy can help you get the financing you need to get your business off the ground.