Finance for Small Businesses
Most small companies need access to finance at some point. It might be to fund expansion, develop a new product or simply to exploit a golden opportunity. Whatever the reason, there are many sources of finance which businesses can turn to.
Any arrangement where investors receive part of your business in return for putting capital in is called equity finance.
Venture capitalists are a common source of equity finance. They tend to invest large amounts of money in businesses with high growth prospects. Most venture capitalists are hands off with businesses they invest in, but they will be looking for a high rate of return.
If you are not looking for a large investment (£250,000 or more), business angels can be a good alternative to venture capital. Business angels are individuals looking to invest their own money in interesting businesses.
These people have often successfully run and exited from their own business, and may be able to act as a mentor, offering your company valuable advice. Less-focused on a high rate of return, they’re likely to invest in businesses they find personally interesting.
Some companies float on a stock market in order to raise equity finance. This isn’t an option for most small businesses, but if you have a secure revenue stream it can be a good way to increase your profits and provide a source of funds.
There are many places to look for loans. They can be straightforward to secure, as long as you can demonstrate exactly how you will repay the loan or have assets against which you can borrow.
Banks are the most common source of business loans – if taking this route, shop around the main banks for the best interest rate and conditions. The terms of repayment can vary hugely and banks may be willing to negotiate. If you’re comfortable mixing business and pleasure you can also approach friends and family.
The big advantage of finding grants for your business is that they never need to be repaid. However, it’s not quite as simple as being given free money – grants are generally intended to be used for a specific purpose and may have other conditions attached.
For example, they might only be available to a business based in a particular location, or your company might have to match the value of the grant from other sources of investment.
John McGarvey, http://www.mcgarvey.co.uk