You may need finance to get your company started, or may seek an injection of capital further down the line. What types of funding options are available to limited companies?
Friends & Family
Many small businesses get started with help from friends and family. With institutional lending at an all time low, this is more the case than ever. Whilst borrowing from people close to you definitely has its advantages, you should always record any transactions on a purely business basis, to minimise any complications down the line. Any business agreements you make should be written down, and you should seek legal advice where necessary.
Credit cards and personal loans are another frequent source of initial funding for new businesses. Again, it is harder than ever to secure business bank loans, especially without a track record to fall back on. Of course, you are personally liable for this type of funding, and your personal liability is not limited.
Business Bank Loan
Business bank lending would be the preferred source of funding for many businesses, however despite the good intentions of Project Merlin, the amount of lending to small businesses remains inadequate.
Rather than being a source of funding itself, invoice financing (or factoring) frees up the value of your outstanding invoices in exchange for cash. It can be a very useful way to free up your company’s cashflow, in exchange for a flat percentage of your invoice value. The factoring company will often take care of late payment issues on your behalf – often one of the biggest causes of stress for small companies. Find out more here.
If you are seeking to expand your business, you may seek more substantial funding at some stage in the future. If you are lucky enough to know, or meet, a high worth individual who has a shared interest in your vision, you can not only benefit from the capital they can provide, but often the experience and expertise they can offer your enterprise. Once again, it is crucial to get legal advice before entering any type of arrangement with a third party, to ensure that your interests are protected. Find out more about angel investors here.
Alternative Funding Options
In recent years, a number of niche funding methods have emerged – including ‘Crowdfunding’, whereby a large number of investors (often via the Internet) pool their resources to launch or fund a business idea. Whether or not alternative sources of finance are available to you will often depend on the industry you are in.
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