Small Business Financing

Raising finance for your company should not be difficult provided you have an existing profitable business or you have an idea for a new business that is feasible. Both of these aspects are important. If a lender is to finance your business they must be sure that you can meet the repayments. They are in business to lend money and make a profit.

Raising the right type of finance for your business is also important. There is little point in borrowing money on a short-term basis if you can only repay it over the long term. This is a common mistake that small businesses make. They utilise short-term finance, for example a bank overdraft, to finance long-term expenditure such as the purchase of a new vehicle. This then leads to a reduction in short-term finance for working capital which could, in some circumstances, lead to business failure. You must match the type of finance to the type of expenditure.

Your bank will probably be your first option to gain finance for your business, but we will also look at other alternatives in order that you can gain an overall picture of what may be available.

Tip: Never accept the first offer of finance - finance providers are in a very competitive market and if you have a good proposition you should always seek alternative quotations

Investing Your Own Money

Before you can even consider raising funds from external sources you must make your own investment. This investment takes two main forms:

1. Financial Investment, as the name suggests, is a direct injection of cash into your business. If you are operating as a limited liability company, this could take the form of share capital or director's loan. If you operate either as a sole trader or partnership, it will be classified as owner's or partner's capital.

The decision as to which type of business to operate can be complex. There are advantages and disadvantages to operating as a sole trader or as a partnership, or as a limited liability company. From the outset you need to seek professional advice on this aspect.

2. Non-Financial Investment is the introduction of assets that you may already own, such as motor vehicles and tools and equipment. These need to be carefully valued for inclusion in your financial records. If you are introducing assets into your business in this way you are advised to seek the help of an accountant. This will ensure that your assets are correctly valued and that they comply with any Inland Revenue guidelines.

Showing Commitment

There are no hard and fast rules about how much of your own money you must invest in your business before you can gain finance. One of the important factors that the potential lender will be looking for is that you are showing a total commitment to your business.