In 2020 and 2021 many people have find themselves starting a business or changing career due to the impact of events across the world.
This article will give you an up-to date view of all the finance methods available in 2022 should you want to start a business.
By the time you have read the article you will be in a much better position to make an informed decision and have more details about financing your new business
The most common method to finance a new business is a loan. Loans are very useful as they can be used for a variety of requirements such as marketing, wages, advertising etc.
A bank or a specialist loan company can provide you with a start-up loan but be prepared to supply a business plan, forecasts and some evidence to show that you can manage your finance personally such as bank statement’s.
If you are struggling with a business loan you can also take a personal loan and then lend it to the business.
Make sure you consult with your accountant as It will reduce you tax liability at a later stage when you want to withdraw that investment.
- Investments
You can offer some shares in your business in exchange for investment in your company.
There are various platforms available to advertise your company online and pitch to investors. Be conscious that once you sell shares in your business it will be very difficult to take them back at a later stage without paying the investor for those shares.
Serious consideration and legal consultation should be taken before agreeing on investment in your business.
Investment clubs are also available where you can pitch your business ‘Dragons den’ style to potential investors.
This has been a very popular way of raising finance for new businesses recently.
- Equipment Finance
Perhaps one of the more unpopular ways to finance a new business but possibly the easiest way to finance your new venture.
Hard assets are very easy to finance as they have some intrinsic value just like a car. You can finance all of the necessary equipment to start a business such as IT Hardware, Warehouse Racking, vehicles even office furniture.
You get the idea! More or less any item you would need for a new business from a coffee machine, horsebox or a machinery finance for a construction company can be financed using asset finance.
- Crowdfunding
Crowdfunding has been very popular over the last few years, making it popular sell shares in your business to anyone who wants to buy them!
This refers to the term crowd to indicate that large numbers of people have invested in the business, it can be as many as hundreds.
Like other forms of investing there are procedures set out by the FCA and fees to pay to the crowdfunding website.
Most companies that crowdfund are likely to have traded in some way beforehand and can provide evidence that’s it’s a sound and profitable business model.
- Angel investors
Angel investors are people (investors) that have a track record investing in new companies. Most will want you to demonstrate a track record of having a successful business and the business you are seeking investment for will have had to trade.
- Factoring or Stocking Finance
If you wanted to set up a new business selling vehicles, then stocking finance is worth considering. Most vehicle dealers will use this form of finance to finance vehicles that they hold but have not sold yet. The bank charges a monthly interest rate on the assets you have on stock and when you sell one you reduce the amount borrowed.
- Savings or friends/family
Sometimes overlooked but using savings or loans from family members is a good way of getting started without committing to a long terms loan or an investor.
In Summary
So there you have it, a comprehensive list of all of the different types of finance available to you if you wanted to start a business.
You don’t have to have a limited company you can apply as a sole trader this just means your personal name and a trading name. However lots of people prefer to register a limited company it can be better for tax and also at a later stage separating yourself from the business.
For a small fee you can register your company at companies house. Once you have registered the company you are liable to produce financials even for a dormant business. A dormant company means you have registered the name but haven’t actually traded yet.
It’s quite sensible to pay an accountant to do this for you just to make sure you have followed the law and there aren’t any nasty surprises further down the line.
If you don’t want to ready the whole article we have created a video version.
Article kindly supplied by Kingsgate Finance Ltd.