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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 and 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 - see the page in this guide on how to use your own money to set up your business.
Family or friends might back you. However you should carefully consider the risk that they could lose their money if your business fails - see the page in this guide on how to use finance from friends and family.
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 - see the page in this guide on how to use bank finance to start your business.
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 - see the page in this guide on how to get outside investors to help finance your business.
You might qualify for a grant - for example, if you are setting up a business in a deprived area. See the page in this guide on grants and government support.
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. Alternatively you might be able to attract support from other businesses in your peer group. See the page in this guide on other sources of finance.
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.
From Business Link - www.businesslink.gov.uk/
