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Startup finance for a new small business
As a general rule, if you can possibly set up a business
without resorting to external finance (from a bank, loan, or whatever)
then this is always preferable. Having said that, most
businesses need to acquire resources to get started, and although
often not enough thought is put into finding less expensive means
of acquiring these, sometimes biting the bullet and spending money
is the wisest option - and this money needs to come from somewhere.
BANKS
Banks are the most traditional way of financing a business. In normal
circumstances you would need to approach a bank with a detailed business
plan, present your idea well, and convince a business lending manager
to lend you money. Note that even if you form a Limited company, your
bank will often require a Director's guarantee on the finance, meaning
if the company is unable to repay the debt, the Directors will become
personally liable. Banks can sometimes offer business advice, but
will not usually be directly involved in the running of the business.
VENTURE CAPITALISTS
Venture capitalists (VCs) are individuals or companies that invest in
businesses, usually in return for a share or stake in that business. Often
a VC will take a seat on the board and offer advice. VCs often prefer to invest
in businesses that have built up a track record, so unless your business idea
is absolutely unique, it may be impossible to obtain investment this way.
Words of warning : Venture Capitalists have their own agenda; to make money.
Sometimes this means they will take a short term view on a situation where a business's
founder disagrees. If they hold a majority share, this can be upsetting! Also,
never discuss a business plan with a VC unless you have signed disclosure
agreements in your posession.
BUSINESS INCUBATORS
Many universities and business schools (and other organisations) have
business incubation units attached. This means a business can be grown
with locally sourced advice and help. Often investment can come in the form
of free or cheaply available resources, but some incubators will lend money.
In general these can be 'safer' methods of obtaining finance than others, since there
is more personal involvement and contact.
If you are at a university with a business school, it might be well worth
talking to the relevant person, since a chat is free, and you may make
contacts who can point you to other sources of finance.
TRUSTS AND CHARITIES
In some circumstances small businesses are able to obtain investment from
charities. The most prominant of these is the Princes Trust. If you are aged 18-30 and meet
some other conditions you may be eligable for a loan of up to £5,000. There are even
grants available of up to £1,500 in very special circumstances.
There are other organisations with similar intent (to help startups), however it is
often required that you demonstrate an inability to obtain finance from other sources
(i.e. banks), so detailed business plans are still a requirement.
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