Small Business Start-Up Checklist - Financing Your Start-Up

A common barrier that a lot of people feel prevents them from starting their own small business is how to generate enough capital to get things up and running. A large number of SME owners end up working two or more jobs because they cannot afford to give up their previous employment whilst their new business is in its infancy. Although this is a necessary evil, it can only harm the performance of their start-up if they are unable to give it their full attention.  

These are the most common methods of financing a start-up:  

• Personal Savings – The majority of entrepreneurs finance the bulk of the cost from their own savings. This has the benefit of needing no repayment but also could leave them without any further money to inject into the business
• Banks – Nearly half of all start-ups take some form of loan from a bank. In recent years, banks have been handing out money very easily but this looks set to change in the current economic climate. Borrowing money is probably best avoided at this time, but if you decide to then think carefully about which bank to choose. A bank will probably expect you to risk some of your own funds before they give you anything. A strong business plan will be crucial in securing a loan
• Friends and Relatives – Almost a third of start-ups have some contribution from family and friends. This group of people are - for some entrepreneurs – the only people who will have enough faith in you succeeding to actually invest. Their contribution may come in the form of a loan or possibly for some share of ownership. The main disadvantage to this sort of arrangement is that if your business fails it could also damage your personal relationships
• Individual Investors – There are people who are willing to take a gamble and invest in promising start-ups. About a tenth of new businesses have had contributions from outside investors, usually in exchange for some percentage of ownership. These agreements can sometimes be very flexible depending on the individual and may need only last for a fixed term i.e. until the money is repaid
• Government Loans – Although hard to get in the UK , it is common practice in many countries for Government’s to provide small business loans and grants to start-ups. This helps nurture the development of industries or can help re-vitalise one that is flagging
• Venture Capitalist Firms – A very small amount of new start-ups opt to receive financing from venture capitalists. They are unlikely to invest unless they are guaranteed a big return and will be extremely demanding

If you are still unable to generate capital through any of these methods it can be helpful to attend a business school. At the school you will get to know like-minded people and they may be interested in going into business with you. In addition, most schools run business plan competitions that award funding to the best entries. 

For the previous stages of this checklist look here 

6 Responses to “Small Business Start-Up Checklist - Financing Your Start-Up”

1. R&R Finance
   http://randrfinance.com
   
   Said on May 7th, 2008 at 6:55 pm

   There is also another way of financing a new business or expansions of a current business, that is through unsecured financing, and RandR Finance offers that. Unsecured credit is a way to obtain money for a business that puts no to very little liability on the person, making it less stress full and don’t have to put collateral down. You can with the unsecured credit obtain large amounts, up to $150K, so you can full support the cost of starting a new business and what is nice is that you only pay back what you use, instead of the full amount you qualify for.

2. Stefan Töpfer
   http://www.winweb.com
   
   Said on May 7th, 2008 at 7:28 pm

   What needs to be remembered also is this:

   “If it sounds too good to be true. maybe it is too good to be true!”

   — Stefan

3. R&R Finance
   http://randrfinance.com
   
   Said on May 7th, 2008 at 9:07 pm

   It isn’t to good to be true. I have seen dozens of people use this way to finance business. It is one of the fastest growing ways of financing a business.

4. Stefan Töpfer
   http://www.winweb.com
   
   Said on May 8th, 2008 at 8:36 am

   Denise,

   So it’s money - up to $150k - to finance your business with:

   - No securities, or as you put it “very little” liability to the business owner;
   - No Collateral needed;

   When you say unsecured, what exactly do you mean? What happens if the business fails, what happens to the sole trader, self-employed, LLC, whatever? PLEASE EXPLAIN.

   If you can convince me that this all is true, I’ll write a whole story about you!

   – Stefan

5. Chris Burgoyne
   http://www.loan-machine.co.uk
   
   Said on May 8th, 2008 at 9:59 am

   $150k “unsecured”?! Was the ‘k’ a typo?!

   Sorry, have to agree with Stefan here - seems far too good to be true!

   Chris Burgoyne
   www.loan-machine.co.uk
   www.iva-machine.co.uk

6. RandRFinance
   http://www.randrfinance.com
   
   Said on May 9th, 2008 at 7:19 pm

   The $150k is recieved over a year. The way it is unsecured that that person applying for it is not personally liable or putting collateral. The only securty needed is that somebody has a credit of 720 or higher, so they know that payments will be made. Of course, if the business fails you still need to pay it off, it just offers another way to finance the company.

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