Company

Show me the Money

If you are thinking of starting your own business, one of the most important factors to consider at the beginning of your journey is how you plan to finance your venture. This guide will provide a quick overview on the funding options available.

What are the main types of business funding?

Unless you have recently come into a generous inheritance or won the lottery, you are going to need some sort of finance to come up with the money needed to purchase a business.

There are many alternative sorts of financing available now (such as crowdfunding), so for your convenience we have outlined the main sources below.

Banks or Other Lending Institutions

Most entrepreneurs start by approaching their local bank.  Banks will commonly lend up to 60% of the total price of the business, with you having to provide the final 40% of the capital.

However, to be successful in convincing a bank or lending institution to lend you money, you will need to provide the following:

  • A comprehensive business plan
  • Revenue projections
  • A valuation of the business
  • The assets and liabilities of the business

You may find you must provide some sort of personal guarantee to take out a business loan if you have no prior track record of owning a business.

Private Investors

Often referred to as ‘angel investors’, private investors are high-net-worth individuals who will invest money in businesses that show true potential (think Dragon’s Den).  The Financial Services Authority (FSA) has strict regulations surrounding approaching private individuals for investment funds; therefore, it is imperative that you obtain professional advice before doing so.

Venture Capitalists Funds

Venture capitalists seek out highly profitable, fast-growing businesses to invest in.  If you are buying a lifestyle business, then it is unlikely your business will provide the level of return needed to attract venture capitalists.  However, if you are looking to buy a fast-growing enterprise such as an IT-based company or a children’s’ nursery, approaching venture capitalists is a good way to obtain a large chunk of investment.

This type of investor is likely to be heavily involved in the decision making and running of your business.

Crowdfunding

Born from the Internet, crowdfunding is the latest way to obtain finance for your business.  If you have been turned down by your bank, you may find that appealing to hundreds of small investors via the Internet is the ideal way to raise the funds you need to buy your new venture.

Investments or donations are usually made through online platforms, which then coordinate and administer the fundraising.

There are three types of crowdfunding;

  • Donation crowdfunding
  • Debt crowdfunding – funders lend money and will be paid back with interest
  • Equity crowdfunding – where funders invest in exchange for equity

Both debt and equity crowdfunding are now regulated by the FCA.

In Summary

By thinking about your business plan, the legal structure of your business and how you are going to finance the purchase before you commit to buying a venture will greatly increase your chances of success.  It will also go a long way to reducing your stress levels during the process.

If you require legal advice regarding business funding, you can quickly find an experienced commercial law solicitor by searching through Solicitors Guru today.


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