Finding Business Funding
Service-leavers aiming to start their own businesses can sometimes find that they require additional funding beyond their savings and leaver’s lump sum. Here are a few options, both traditional and unconventional…
Investigating borrowing from banks is perhaps a good starting point. They can provide both a benchmark regarding the amount of funds that’ll be made available to you as well as the amount it’ll cost to borrow. The process might also show up any weaknesses in your business plan that could then be fixed to increase your chances of a more competitive deal.
Basic preparations should include thinking about a precise figure you’ll need to fund your business and how you’ll use it.
Banks will have different lending criteria and terms depending on the amount you need to borrow and the repayment term. Banks do not have to lend and some will have policies that preclude certain industries, for example. Loans are always subject to lending assessment, status, application and terms and conditions.
With all of this mind, you’ll need to decide the amount you want to borrow, over what time period (which can be up to 20 years for larger sums). There may be decisions to make regarding fixed versus variable rates or even interestonly repayments.
As with any ‘product’, shopping around for a deal that really suits your business (and business plan) is a sensible idea. For instance, Barclays currently offer a six month repayment holiday at the start of your loan – interest will continue to accrue, which will be included in your repayments – but it means that you can get initial business cash flow underway.
Once you’ve built up a relationship with your lender, they may be in a position to discuss further borrowing should an opportunity to grow/improve your business come up. That said, it’s not an infinite pool since the bank will probably expect you to find a portion of the start-up costs from your existing resources.
It’s not that uncommon in the early days for family and friends to financially support businesses with a loan. This option usually works best where only relatively small amounts are required, perhaps to prove concept – when the business can then access more traditional funding. Naturally, it’s quick and easy to set up – and could provide a good result for lenders. The downside is that if things don’t go as you’d like, it can get awkward.
Crowdfunding is a method of raising the capital you need from combined individuals, via the internet. Peer-to-peer lending is a straightforward loan (with amounts loaned from as little as £10) or you may decide to swap shares/equity in the business in exchange for their taking a risk on you.
The process can take time and quite a bit of marketing effort, although with a wider pool of lenders, each one will be relatively cheap to borrow from. Remember that you may end up not owning 100% of your business.
Investors can be sourced from specific events while others literally advertise their availability. These are usually wealthy individuals with money to invest in exchange for shares in the business. Similarly, venture capitalists will have large amounts of money to invest in the right business. The difference is that they may want to prioritise making money quickly and demand that you make certain decisions to suit them. The upside is that they may be able to give you advice based on previous successes.
Specific franchise loans
Banks feel more comfortable lending when they consider the risks to be low. For scratch start-ups it’s essential that your business plan is robust. Since franchising is based on a proven formula, you should have few difficulties in gaining funding so long as you’ve done your homework and are also able to show that you understand how the business will operate and return a profit.
High street banks often have specific franchise funding options.
British Franchise Association
Government Start Up Loans
The Government love entrepreneurs. They employ people and help to grow the economy. Government-backed Start-Up Loans from £500 to £25,000 are available to help you to start or grow your business. The process is relatively straightforward. You’ll be matched with a ‘delivery partner’ who will offer free advice through the registration and application stages that detail your financial circumstances, as well as what you’re looking to borrow and how you’ll use it. For the final assessment, you’ll need to provide a business plan, cash flow forecast and other contingency planning.(The average loan amount is £7,200 with loans charged at a fixed interest rate of 6% a year and terms between one to five years with no application fee and no early repayment fee.)
Eligible applicants get free support and guidance to help write a business plan, and successful applicants get up to 12 months of free mentoring.
A customer service line is open on weekdays from 9.00am to 6:00pm.
Tel: 0344 264 2600 or email: firstname.lastname@example.org.
There are several organisations offering specific help for Veterans that can include advice on starting their own business after they’ve resettled from the Forces.
The Royal British Legion, for example, is the country’s largest Armed Forces charity. They work with partner organisations to provide Veterans with training in setting up a small business that includes help with creating a business plan and financial planning as well as assistance to find suitable start-up funding – and business mentoring.
Search ‘employment support’ at: www.britishlegion.org.uk or tel: 0808 802 8080
X-Forces is an organisation that specialises in encouraging commercial enterprise among the Military community through training, mentoring and funding opportunities.
0800 368 9533