Funding your own business

Whether your business is up and running or still a pipedream, don't let cash worries crush your plans.

Should I just get a bank loan?

This is an option worth considering, but remember there are thousands of different loans, and finding the best one for you can be daunting. Interest rates vary from around 5–20%, so look out for the annual percentage rate (APR). Loans fall into two categories: secured and unsecured, depending on whether you have your own assets, such as a property.

Pros:

• If you have an asset, secured loans generally attract lower interest rates and can be paid off over a longer term
• Most bank loans come with free business advice, which can be invaluable when you're starting out and don't understand how business accounts work

Cons:

• Your assets are at risk and can be seized if you don't keep up repayments on your secured loan
• Even not keeping up with an unsecured loan has serious risks; you could be taken to court or face bankruptcy
• If you have no credit history, assets or track record, or you're under 18, banks may be unwilling to lend you money

I've heard about grants – how do they work?

Government agencies, private bodies and some charities award grants to entrepreneurs, particularly those interested in innovation or regeneration. Fresh ideas go down well, so if your business is still in the planning stage, all the better.

Pros:

• Unlike a bank loan, you won't be required to pay it back and you won't have to give up equity in your company
• You're likely to get lots of support from industry experts to help your company through its early stages
• Grants are available for anyone with enthusiasm and a good idea, regardless of background

Cons:

• Securing a grant can be tricky, time-consuming and ultra-competitive
• To be eligible, you'll have to comply with strict criteria
• It's unlikely you'll get enough to fund your whole business – applicants are often asked to match any funds awarded with their own money

Is it a good idea to get money from relatives?

Don't write off the option of cash from The Bank of mum and dad (or sister, mate, or great uncle). Yes, you're making your own way, but if you need a helping hand financially, friends and family could be it.

Pros:

• You might be able to borrow money on a low interest rate, or even interest-free, and friends and family might be more flexible about how the money is paid back
• They have a good idea of your character and trustworthiness, without you having to prove it officially
• They'll want you to do well and will feel proud if your business flourishes

Cons:

• Mixing business with friends or family can be disastrous if it goes wrong, so be clear about the boundaries before agreeing the deal
• Being unrealistic or dishonest about worst-case scenarios could bring huge disappointment if you can't pay the loan back

By Liz Nicholls

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