A small business will need financial help at various stages of the business development, whether it’s a new start up or an established business. Finance is required for buying or replacing equipment, establishing the workplace, moving to larger premises and the cost of marketing the business. For a start up business, the finance will have to be sourced before any sales are made. An established business should have cash to pay the bills and maintain the business but may need financial help occasionally. Whatever stage the business is at may influence the most appropriate type of financial help, although criteria for business lending is now tighter than ever and may make obtaining financial help more difficult.
Financial help is available from a variety of sources and the source will be dependent on the type of business and whether it is established or a start up. Outside financial sources from banks or investors may be considered. Borrowing from family or friends is also an option, along with a business overdraft or even your own personal money. Government grants are also available, but there are typically strict criteria to be met before being able to apply.
Outside investment provides financial help at very little cost, like venture capitalists and angels. These provide finance without having to repay, in addition to providing lots of business expertise and advice. However, this type of finance usually requires you to give up some shares in the business and investors may want to have some management control.
A government grant is another cheap source of finance if you meet all the eligibility criteria. A grant doesn’t usually have to be repaid as long as you fulfil the criteria. You will also receive business advice and support with this type of finance, which is particularly useful for a new start up. However, competition for grant schemes is huge, and the schemes may only be available to certain areas or industries, which can severely limit your chance of acceptance.
There are other sources of financial help available, especially if you have trouble obtaining finance from a traditional source like a bank. Community Development Finance Institutions are an alternative to bank funding. They are independent organisations which have been set up in disadvantaged areas or markets to create wealth and development. CDFIs offer finance and support to sole traders, small businesses and micro enterprises.
Peer group lenders are businesses which are prepared to lend to other businesses in their own area of expertise. For instance, Prowess is a UK association which offers help and support to women in business. Tax allowances and reliefs can also be beneficial to small businesses, like Regional Employer NICs holiday scheme. This is available to new businesses and reduces the amount of National Insurance Contributions payable for an employee by up to £5,000. This applies to the first ten employees but has a time limit and a number of restrictions.
Regular financial planning is crucial for all small businesses to spot any possible cash flow difficulties and be able to deal with them early. Not all types of financial help will be suitable or available for all businesses. Financial help is usually in the form of a loan from family or friends, personal mortgage, commercial mortgage, credit cards and grants. There are various other options which include crowdfunding, angels, Regional Venture Trusts, Venture Capital Trusts and Venture Capital.
It is crucial to obtain the most suitable source of financial help for your business, one which will minimise costs and benefit your business long term. Professional advice should be sought before making any decision regarding financial help.
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