Starting out - raising finance

While the term 'credit crunch' isn't being used as much as it was, raising finance is still not easy. So what are your options? Banks The banks are, despite what is being said about them, open for business, but in the current climate only thorough, well thought out propositions succeed. You need to bear in mind that many processes within the banks are heavily automated and this applies to lending decisions for amounts under around £30,000. Requests for larger amounts tend to escalate up the chain with a manager deciding if you are likely to be able to repay. Different purposes need different packages which, in turn, have different interest rates. So, to get funding you need a detailed application which outlines the purpose of the loan - a solid business plan with cashflow forecasts; copies of your personal and business bank accounts; details on other loans you or your business might have; any (potential) bad debts; and whether you expect to have wildly varying peaks and troughs in business levels which may affect cashflow. There are too many individual offerings from the banks to list here, so the best advice is to visit comparison websites such as Moneyfacts www.moneyfacts.co.uk/business/default.aspx . Lending yourself It's not as strange as it sounds, but lending to yourself is becoming more popular as traditional sources can be difficult to tap. Of course, you will probably consider banks first; their funds allow you to leave your own cash safe and available for your own private day-to-day use. But, if you cannot get bank finance, then you'll need to consider putting your own money in from savings or from re-mortgaging your home. By lending to the business - assuming the business is a limited company - you can bypass the banks that wouldn't help (and avoid the need to pay high rates of interest). Also, if you're going into business with others, you can - if no one else is going to put their hand in their pocket - almost write the terms yourself. For your own protection, especially if it's for a large sum, you need a contract for the loan ideally written by lawyers (which you would probably have to do with a large loan from a bank). You need to agree terms with any other business partners you might have. Remember to build in enough flexibility with money loaned otherwise the business could have to go through the whole process again to borrow more. Note that if the business is a limited company you'll need to check what the company's articles of incorporation say about borrowing - there could be restrictions. Business links and Government help Don't forget the Government backed Business Link network. Regionally based, this covers England, but there are organisations for the rest of the UK - Enterprise in Wales; Invest Northern Ireland; and Highland & Islands Enterprise/Business Gateway for Scotland. Visiting www.businesslink.gov.uk is time well spent as you'll find plenty of useful information on grants, finance, sources of help, 'how to' guidance and reference points. Consider a look at the Government's Enterprise Finance Guarantee Scheme. This programme guarantees lending to viable credit-worthy small firms with an annual turnover of up to £25m that are looking for loans from £1,000 up to £1m. But there are other Government backed programmes that may be worth investigating and the Business Link website will point you in the right direction for all of these. Not only can the site indicate what is out there, but it also offers a searchable directory of specific grants and programmes. For example, look at the section Business Support Finder, choose the type of support you want and then enter your location. For example, in Oxfordshire, if you want information on setting up a business you'll find some 22 grants and 12 forms of expertise and advice. Consider sale and leaseback Do you have assets that you could sell? If so, consider sale and leaseback. Here the business sells the asset to a third party, receives the cash value, and then retains the use of the asset in exchange for paying a rent. Land and property - your premises for instance - are most widely covered by these arrangements, but any capital item that can be rented for a decent length of time could be the subject of a sale and leaseback. There are tax consequences of sale and leaseback so good accounting advice is necessary. A number of firms offer this service. Problems with the bank? Finally, there will be occasions when you have a problem with your bank. Luckily, as a private individual or a business with a turnover under €2m and fewer than 10 employees, you may well be able to seek redress through the Financial Ombudsman Serice. The ombudsman service is an informal procedure which aims to settle disputes fairly by listening to both sides. It is free for complainants and the ombudsman can require the firm to pay up to £100,000 to settle a dispute. Complaints taken to the service include disagreements over terms and conditions; whether terms and conditions are considered to be clear; if a firm is applying the terms in the contract fairly; and if important terms were brought to the buying company's attention at point of sale.