Most small business owners require finance to launch their company, although they may not have the necessary capital available. It can be difficult to secure business finance, especially during the early days when you aren’t established. Entrepreneurs may try the traditional routes for borrowing, or they may want to use a more creative approach to financing their venture.

Family and friends

One alternative to traditional finance solutions is borrowing from a friend or family member who has some savings they are willing to lend to you. There are many advantages to this form of borrowing, including paying no interest or a low rate of interest. However, there are risks attached to this type of borrowing, as any problems with the business may mean that you have difficulty paying back the money and your relationship could suffer.

Employment

For those who need security while starting their own small business, it may be useful to stay in employment until the company has started to generate profits. During the early days of running a business, it is difficult to forecast sales and expenditure, which may result in sporadic income. If you have to maintain a home and the associated bills, you may want to consider remaining in employment for a while and running the company on a part-time basis initially. Any disposable income from employment may be used to invest in your business.

Home equity

A home equity loan is a cheap way to finance your venture. If you have a substantial amount of equity in your home, consider releasing some to invest in your business. The interest rates are generally lower than a personal loan, and payments can be spread over a longer term. However, if the business fails you will still have to pay back the loan, and this could be difficult if you have no form of income.

Assets

If you have any assets, you could consider selling them to raise finance for the company. If you have a car which you don’t use, a holiday home or other asset, you could sell them and invest the proceeds into the business. This method of raising finance has less risk than a secured loan or equity release.

Credit card

Business credit cards are a good way to raise finance, as the process is very quick and the minimum payments are low. However, if you only pay the minimum amount or have trouble making payments, the interest will soon add up, making it an expensive method of raising finance.

Angel investors

An angel investor will make an investment into your company in return for a share of the profits. Investors usually have experience and can help with advice and business opportunities.

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About The Author

Karl Bilby

We work very closely with our expert accountants to bring you the latest factually correct tax and accounting news. We also enjoy writing about small business news that we hope you find useful!

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