Choose the right finance when starting up

The type of finance you choose will depend on:

• what kind of business you are starting
• how much money you need
• what you will use it for

Many people use their own savings or personal borrowings to fund the business.

This may be the only choice if you can't convince anyone else to lend you money or invest in the business.

Family or friends

Family or friends might back you.

You should carefully consider the risk that they could lose their money if your business fails.

Borrow from a bank

If you have a credible business plan, you may be able to borrow from a bank.

Many businesses use overdrafts for day-to-day borrowing, and loans to finance large purchases such as equipment.

If your business is likely to have peaks and troughs in its cashflow, it's essential to be able to clearly illustrate these to your bank so you can plan an overdraft.

Outside investors

A larger business with good prospects might attract outside investors.

For example, 'business angels' typically invest £10,000 or more in exchange for a share in the business.

Grants

You might qualify for a grant - for example, if you are setting up a business in a deprived area.

If your business is setting up in a deprived area, or in a sector that is not normally catered for by mainstream lenders, you might be able to attract finance from a community development finance institution.

Use a mixture of finance sources

Most businesses use a mixture of finance sources.

For example, you might:

• invest your own money in market research,
• bring in outside investors to share the risk, and
• borrow from the bank to purchase equipment and machinery.