If you are thinking of starting a new business, the chances are that you will need to raise finance from an external source. Like everything else, this requires careful planning and good professional advice.
Sources of finance
Some of the more common sources of finance are:
- share issue for your company
- hire purchase
- debt factoring
- assistance from Government-backed schemes and from regional authorities
- venture capital
We can help you to do a comparative study of the costs of each possibility, and also consider any tax implications before making a final decision about who to approach.
Most lenders will require some form of security from you. No amount of security will make a bad plan good, but it does demonstrate commitment from your side and provide insurance for the lender.
Typical forms of security include:
- fixed or floating charge over your business assets
- second mortgage on your home
- personal guarantees
If the lender requires personal guarantees you should proceed with caution. Try to ensure that any such guarantees are limited in amount, if not in time. You can also consider insuring the risk. You will almost certainly be required to present a comprehensive and convincing business plan to show how you are going to service the loan.
In all three areas – choosing a finance source, securing the finance, and preparing a business plan – you will benefit greatly from our advice.
Maximising your chances of success
While many business owners feel confident about presenting a finance proposal to a bank, a surprising number of proposals are actually turned down. Here are some essentials for raising finance:
1. Choose the right financier
Spend time thinking about the most appropriate funding source for the project or objective. Learn about the various sources of finance and select those best suited to your purpose. If in doubt, seek our help.
2. Provide the financier with the right information
Often, unsuccessful applicants will complain that the lender did not seem interested in their business, but this is not necessarily the case. More often, it is not because the idea is lacking, or because the bank disapproves of the proposed development. Rather, it is because the proposal is not presented in terms that will appeal to a potential lender.
Make sure that you fully understand the information that the lender wants. This often means much more than simple financial projections.
To have confidence in an enterprise, a financier usually wants to gain an appreciation of the business, the quality and depth of management and the key people involved – and this information should be presented in a suitable way.
3. Take professional advice
It is best to use the services of a professional when preparing and presenting a proposal. We can help you
prepare a solid, detailed business plan that will attract financial support, and perhaps identify potential financiers who will meet your needs.
A well-prepared proposal presented to a carefully chosen lending source will have a greater chance of success.