Financing your start-up

Do you need finance or better cash flow management

A business should have a continuous focus on cash flow. Many businesses can get by without raising finance as the cash flow is well managed. You must commit time to manage cash flow so that it doesn’t dictate to you. This means having regular procedures such as the ones listed below. 

• Have clear credit agreements with customers and suppliers.
• Have a system for keeping the aged debtor schedule up to date with payments from customers.
• Regularly chase up late receipts from customers.
• Chase customers at management level. Don’t get stuck in their accounts department; get onto your contacts in the buyers department.
• It’s vital that you know your current bank balance and how you expect it to change over the next three months. 

Good financial management not only helps manage cash, it will reassure finance providers. If your business is growing it can mean increased working capital. You should arrange your finances to meet any anticipated increased need. Arranging finance in plenty of time demonstrates to finance providers that you are in control of your business. 

The business risk profile matters

• Finance providers use a variety of information to assess risk. 
• Behavioural scoring data shows how accounts are run, facilities repaid and any evidence of a drop in turnover. 
• Credit reference data is also referred to (paying suppliers later, court judgments, late filings at Companies House). 
• If your business is a limited company, finance providers will look behind the company at the directors’ credit history. 

Equity finance options

Own personal savings and friends and family

A business owner with their own funds, or your friends and family, injects money into your business. People who have previously run a business are often more prepared to lend/invest, with the money given as a loan or equity finance. It is important to understand the expectations of the lender so they know what they will receive back and when. To avoid arguments, put the key features of the arrangement into a written agreement. 

Grants

Grants and support tend to be sector specific, so your trade body or association is a good place to make enquiries, as well as the Local Enterprise Partnership, including for training courses. Technology and green projects can be incentivised. Use the finance and support for your business area on the GOV.UK website to see what your business is eligible for.

• Find out more

Small scale equity finance  

Businesses sell a share in the business to friends, family, Business Angels or other private investors, in exchange for being prepared to give others a say in how the business is run.  Business Angels bring (up to £2m) finance to a business and they normally have experience in what makes a successful business. For over £2m talk to venture capitalists who would also look for a stake in your business.

• Find out more

Debt finance options

Credit cards 

A regular source of finance for start-up businesses and a good way of smoothing out unexpected big bills. It is often used for items such as travel, stationery, petrol, car repairs.

Credit unions 

Association of British Credit Unions (ABCUL) website provides information about member credit unions (CU) and their services and locations. Some larger CUs offer current account facilities. Savers in a CU (usually for a period of at least three months) will allow you to access lending facilities. 

Community Development Finance Associations (CDFAS) – responsible finance 

Community Development Finance Associations (CDFAs) are social enterprises that support communities by providing affordable finance that would otherwise not be available. By making loans, they are able to recycle this finance again and again into neighbourhoods where it is most needed. CDFAs lend money to those unable to get finance from high street banks.

Start-up loans 

Start-up loans are loans aimed at young entrepreneurs who are living in England and looking for finance to start a business. After applying online a Delivery Partner is selected to identify what stage you’re at in your idea process, and help you present your business proposal to a panel where you will pitch for a loan. The maximum amount is £25,000. 

• Find out more

Bank loans 

These are arranged for a set period with set repayment dates and fixed or variable interest applied and are normally secured by a charge over asset(s). Conditions are often attached to the loan (‘covenants’) which can trigger a demand for immediate repayment if they are not met.

• Find out more

Bank overdraft 

The lender offers a facility that has a limit with an agreed interest rate and is probably secured. The business can dip in and out of the facility up to the limit. 

• Find out more

Hire purchase, leasing or hiring and mortgages 

Asset(s) can either be purchased outright or paid for by instalments. There are various types of deferred payment – hire, hire purchase or leasing. Normally used to finance a property acquisition or to expand an existing business premises. It is similar to a bank loan, with the mortgage usually being secured over the premises. 

• Find out more