Financing your new business
Sponsored feature by Barclays
When you're launching a new business, one of the first things you need to consider is how you're going to fund your start-up. Virtually all businesses need start up capital to some degree. For those who need deeper investment they may be looking at commercial mortgages or commercial loans. Many businesses require stock, premises, technology, marketing funds, money to pay staff and bills, or a combination of all of them. A small business plan is very helpful in these circumstances.
One option is to fund the company from your own resources, or that of your friends or family. Self-funding gives you independence and a guaranteed cashflow. But it's not available to everyone, and can cause pressure on personal relationships.
It's also worth investigating whether there are grants available to help get your business on its feet. There are a number of Government agencies, charities, European development funds and other organisations that provide funding to different businesses. Often this depends on the type of company you are setting up, and where in the country you will be based. Your local Business Link will also have further information.
The alternative is to seek financing from a bank or professional lender. Contrary to what you may read in the press, banks are still lending to small businesses but, just as with other types of lending, they want to be confident that you will be able to repay your debts. A detailed small business plan is one way of showing that you understand the financial requirements of your business and how you will repay the debt.
There are a number of different financing options available:
Overdraft: A business overdraft works in a very similar way to those on personal accounts. It's a good way of managing the short term cashflow requirements of your business because you only pay interest when you need to use it. For most businesses, it's not really a way of providing long term finance; but if you anticipate funds coming through quickly, then it could be an effective way of paying for what you need upfront. Business overdrafts are usually agreed for a set period - often a year - so provided you keep to the terms of the overdraft agreement, you have the comfort of knowing that the funds are there when you need them.
Credit card: As with an overdraft, business credit cards are an effective and flexible financing option. They allow you to make immediate payments at a wide number of suppliers, and if you pay off the debt every month, can be a cost-effective way of borrowing money in the short term.
Business loan: A business loan is a more structured way of financing your business. It allows you to borrow a set amount, usually at a fixed interest rate and with set monthly payments over the term of the loan. The benefit of this is that you can plan your outgoings over the term of the loan much more efficiently and you know how much you will need to repay from the beginning of the loan. Some loans will allow you to delay the start of your repayments, which means you have the time to wait until the cash really starts to flow before you need to start repaying the debt.
Commercial mortgage: If you need to buy premises for your business, commercial mortgages are one option to help you finance this. Commercial mortgages are similar to residential home finance - you borrow a percentage of the value of the property and agree to make monthly repayments for the term of the loan. You may also be able to fix the payments for the first few years of the loan. You will usually need to put up some of the cost of the property yourself, though, generally at least 20 per cent of the purchase price.
Barclays is a major global financial services provider engaged in retail banking (bank accounts and instant access savings accounts), credit cards, corporate banking, investment banking, wealth management and investment management services, with an extensive international presence in Europe, the Americas, Africa and Asia. With over 300 years of history and expertise in banking, Barclays operates in over 50 countries and employs over 140,000 people. Barclays moves, invests and protects money and provides business bank accounts,ISAs, online loans, home insurance, life insurance, a mortgage calculator and other services for over 49 million customers and clients worldwide. For further information about Barclays, please visit our website www.barclays.co.uk