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Financing a business start-up

A basic guide on the finance options available to businesses and what to think about before committing yourself.

If you are trying to raise finance to set up a business or to expand a business there are various options available to you. The most common are:

Loans from family and friends

You should think carefully about the terms of any loans including:

  • the amount of the loan;
  • the dates for repayment;
  • whether interest is payable;
  • whether any security is to be granted to the lender; and
  • what rights the lender will have if any of these terms are not complied with.

It is important to bear in mind that even the smallest misunderstanding can affect your personal relationships and could jeopardise your business. By documenting the loan you minimise the risk of either party misunderstanding the basis on which the loan has been made and is to be repaid.

Bank lending

Whilst it may feel that this is somewhat hard to come by at the moment you could consider approaching a bank to borrow funds. Some banks may offer interest free or reduced rate business loans or overdrafts, whilst others have free software or business support packages. It is worth shopping around for the offer that best suits your requirements but be aware of what will happen at the end of any introductory period and bear in mind that banks often require personal guarantees, possibly secured by a charge on your home.

Government grants and funding

There are a variety of Government initiatives to support businesses.  Whether these are available to you will depend on the nature of your business.

Venture capital investors

These are outside investors that invest money in your business in return for a share of the ownership. This can be complex and you should exercise caution because you will be giving away some of your business. You should seek legal advice on the documentation as venture capitalist investors will ordinarily require that you enter into a sophisticated shareholder (or investor) agreement and articles of association to document their rights.

How can we help you?

We are experienced with all types of financing, from the very basic to the complex, and we regularly deal with businesses of all sizes, across all industry sectors. We understand that once you have secured funding you will want to finalise arrangements as soon as possible which is why we will always do what we can to facilitate a speedy transaction.

If you would like to discuss your finance options in more detail please contact Alex Illingworth.