When starting a business, what can hold you back is your finance – money to buy equipment, stock, get your company off the ground and keep it going. Finding funding can be difficult.
If you’re self employed, applying for funding can be a good way to achieve all that. Finding funding from banks to investors, there are several options available.
First though, it’s a good idea to plan ahead, get organised, do your research and ensure you know your business well. You should:
- Produce a cash flow forecast – ideally, this should be a minimum of 12 months to prove you’ll have money coming in.
- Put together a business plan – it’s best to write a three to five-year plan looking at the future of your business.
- Understand what you need funding for – it’s wise to know how you will spend it and how much you’ll need.
So what types of funding are available?
Banks and building societies offer loans designed specifically for businesses. These can help maintain your cash flow or build up your assets, like buying vehicles or the equipment you need to do your job.
The benefit of a loan is they guarantee money quickly for a whole agreed term – usually between three and ten years. You will, however, need to pay it back with interest.
The difficulty with bank loans is that if you have any outstanding debts you may be rejected. You need to be able to, at least, prove that you can manage that debt. An IVA can help you manage that debt. So, if you ask yourself, is an IVA worth it? The answer will probably be yes if it leads to a better credit rating and more options.
A grant is a sum of money given to an individual or business for a specific project or purpose. These are available from many places, including the government, local councils and charities. You can find out more on the Government’s Business Finance explained web page.
The big advantage with a grant is it’s essentially free money – they don’t need to be repaid. But this comes with a cost – there’s a lot of competition for grants and you’ll have to prove why you are a worthy investment over others.
Approaching an investor for money in exchange for giving away a share of your business is another way to secure small business funding for the self employed. Examples include private equity firms and business angels – wealthy individuals who invest in start-ups and small businesses.
The benefit of an investor is they can bring new skills and experience to your business. A disadvantage, though, is you’ll own a smaller share of your business and might have to consult with your investor before making any business decisions.
Rather than targeting big wealthy investors for large amounts of money, with crowdfunding you can approach large numbers of small investors for little amounts of cash. It involves using the internet and social media to pitch and promote your business idea to hundreds and thousands of people.
A main benefit of crowdfunding is you can raise money quickly, often without upfront fees. The downside is if you don’t reach your funding target you run the risk of not making any money.
There are many ways to finding funding if you’re self employed, each with its own benefits to help start and grow your business. It’s important to be prepared, do your research and know your company well enough to ensure you successfully get the funding that‘s right for you.
This is a post on behalf of Auto Advance, a Logbook Loans provider.