Finding Finance
Getting the idea is sometimes one of the easiest aspects of starting your own business and getting the finance is sometimes one of the hardest. You will need to consider all your options when looking for finance and you will need to plan very carefully before making any applications for grant or loans.
Firstly, we need to dispel a myth. There is nowhere you can go where someone will give you copious amounts of money just because you have a good idea. All funders will want to see that you are willing to risk your own money in a venture before they will be willing to give you some of theirs. We recently had a telephone call from someone “looking for funding”; he wanted £92,000 to put his “brilliant idea” into practice.
We asked him how much of his own money he would be putting into the pot, the answer came back that he did not have any money and that he had a house but he did not want to risk it! When we told him that no one would fund such a venture if he was not contributing himself he asked the question “what about Richard Branson, he’s got plenty of money”? To which we replied “that’s probably because he doesn’t give it away easily”.
Grants v Loans
Let’s just get this straight right now:
- A grant is money that is given to you to help you set up your business – you do not have to pay a grant back
- A loan is money that is loaned to you, it is just like any other loan – you do have to pay back the whole of the loan plus interest.
- To apply for either grants or loans you will have to meet certain criteria, these will be specific to the loan or grant fund you are making the application to and you should ensure you check them out before making your application.
- You WILL NEED A BUSINESS PLAN to make any applications for business funding.
Borrowing from Banks
Banks are here to lend money, they are a business and that is how they make their money – from your interest!
- If you want to borrow money from a Bank you will have to have a business plan, they simply won’t look at your application without one!
- If you are looking to start a new business a bank will not lend you any more than 50% of the start-up costs. This means that you have to find 50% of that funding yourself. How will you do that?
- A bank will accept grant funding as part of your 50% stake but not another loan from another source.
- A bank will accept equipment and assets as part of your 50% stake; it does not have to be in cold hard cash.
- A bank will expect you to start making payments to repay the loan immediately.
- Interest rates vary but are usually around 2 or 3% above the existing base rate.
Commercial Loans
- You may be able to get funding through another commercial source other than a bank.
- They will probably charge a higher rate of interest than the high street banks.
- Don’t be fooled into looking at the payments and thinking you are paying less, compare like for like, commercial companies quite often offer loans over a longer period of time, this makes the repayments seem less but in fact you will pay back more the longer you borrow the money for.
Friends and Relatives
- If you have friends
or relatives that are willing to help you it may be a good option
but remember:
- You still have to pay the money back.
- It will be your friends or relatives money you will be risking.
- They may have a situation where they have to ask you for the money at short notice due to unforeseen circumstances.
- Be careful not to land yourself with a not so silent partner (they expect to have a say in the business because they loaned you the money).
- You need to make sure that you draw up an agreement for re-payment of the loan, what you will pay, when and for how long.
- Get legal advice if you are going to do this.
Loan Funds
- You may be able to borrow money from a loan fund that has been set up by your local council or through some form of agency.
- Ask your local Council if there is anything like this available in your area.
- You will STILL need a business plan when making applications for this type of funding.
Prince’s Trust
If you are under 30 years of age you could qualify for funding from The Prince’s Trust. This organisation was specifically set up to help young people that could not get help anywhere else and they do have certain criteria that you have to meet before you can apply:
- You need to be unemployed or in a part time dead end job
- You need to have been refused funding from a bank (they will send you a letter of refusal if you ask them, you will need to show the Prince’s Trust)
If you meet the basic criteria (don’t take our word for it, give them a call anyway), you will be allocated a business adviser who will help you to complete your business plan, you will then have to go before a panel to answer questions on your business plan as part of the application process but your adviser will go with you.
The Prince’s Trust usually offer loans at a very low rate of interest but they also sometimes offer small grants in addition to the loans. They also will give you a loan holiday when you first start so that you don’t have to start making payments immediately; this is to give you a chance to get going before you have to start paying the loan back.
Grant Schemes
Most grant schemes have set criteria that you have to meet to be eligible to apply. These can be very specific and this means that you really need to see a business adviser if you are hoping to acquire grant funding. You can contact your local Business Link and they will send you a “Finance Booklet” with lots of funding opportunities but on full inspection you could find that you don’t meet any of the criteria, so, contact us and we will help you to find out if there is any funding out there that will be suitable for your own circumstances.
There are a few grant schemes available in Lincolnshire that offer generic funding no matter what type of business you are, take a look at www.onlincolnshire.net for grants relating to ICT provision and Broadband for your Business.
Venture Capital Funding
You will need to have a really good idea to secure Venture Capital funding and you will need to have some money of your own to put into the venture. Venture Capitalists are looking for good sound business proposals where the business owner is willing to risk their own money for the sake of the business.
NEED HELP WITH YOUR APPLICATION?
Yes, that is something we can do, we have experience of accessing lottery and other forms of funding. We can help your business or organisation to put your bid together. Contact us.
