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What do you need?
Where does business finance come
from?
External
What
form of external finance is right?
How
do you go about raising external finance?
Internal
Where does business finance come
from?
Business finance is either introduced into
the business from outside as a loan (debt), a grant or an investment
(equity) or is generated internally.
External
External sources of business finance are:
Debt
Most forms of borrowing money to finance a
business (including mortgages, leasing and hire purchase, factoring
and invoice discounting, and most overdraft arrangements) require
the business to provide some form of security by way of charges over
assets. The level of borrowing obtainable is therefore determined
by the level of security you have to offer and you can check how
much can you borrow on this site.
The only usual sources of unsecured lending
to your business will come from credit given to you by suppliers and
any unsecured loans you decide to put into the business.
Grants
To obtain grants you will need to:
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Find out what grants are available
for your business. This can be difficult as there are a wide
variety of grants available across the country funded by local
authorities, central government, Europe and non government organisations
such as the Prince's Trust. To find out what is available in
your area contact a local
advisor or your local Business Link |
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Find out if you have to apply
before you incur the expenditure. Many grants are not retrospective |
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Find out if you can obtain cash
prior to the expenditure. Many grants provide repayment to you
of part of an expense or investment that you have to make |
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Complete the application process
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Await approval of your application
and payment of the funds required which may take some time. |
Some business support is available in the
form of subsidised consultancy rather than cash grants
Equity
The money that can be raised as debt will
be limited by the assets available as security. Any money that the
business needs to trade, which cannot be raised as debt or grants
has to be supplied by the shareholders, either by introducing external
money by investing (in shares in a company) or by leaving profits
in the business.
What
form of external finance is right?
The way a business is financed will effect
how financially stable it is. A business with high levels of borrowings
('high gearing') will have a high level of interest payments that
it has to make irrespective of its trading results. A similar business
which has been funded with equity can decide not to pay a dividend
if times get tough.
You should take advice from a local
advisor as to the appropriate level of borrowings for your business.
How
do you go about raising external finance?
Almost any exercise in raising external business
finance will require at the minimum the preparation of a business
plan and forecasts which act as the main tool for communicating to
the finance provider.
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What you are going to do with
the money |
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How much you need |
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How long you need it for |
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How you are going to repay the
debts or what return the investor will get on their equity |
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What risks is the lender/investor
taking and how these are to be managed |
As a vital 'sales' document you may need help
from a local
advisor to prepare this in a suitable form.
Internal
Business finance can be generated internally:
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In the long term by building
up shareholder's funds with retained profits |
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In the short term by managing
your working capital to generate extra cash ('bootstrapping')
which usually involves
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Reducing or eliminating
non essential expenditure ('what you don't spend you get
to keep') |
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Agreeing terms with suppliers
that allow you longer to pay |
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Keeping the level of stock held
(and hence cash tied up) to a minimum |
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Ensuring that customers pay
you as quickly as possible |
Help in actively managing cash is available
through www.turnaroundhelp.co.uk
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