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Five ways to get money for your business

Starting your own company can be a costly business. Knowing where to find the funding will have a huge impact on whether your idea is viable.

Check out these funding sources and see if any of them could be relevant to your business plan.

1. Personal savings

For anyone with cash tucked away for a rainy day, personal savings can be one of the cheapest and easiest ways to inject funds into your business. It will only cost you the interest that will be missed on your savings - as long as the business does well.

Pros

  • No interest to pay
  • You don't give up any control
  • You don't have to convince anyone else

Cons

  • If the business fails, you lose your savings
  • Only an option if you have already been able to save.

2. Factoring

A common cash-flow problem for small companies is getting clients to pay up. Factoring is an efficient way of doing this by essentially ‘selling’ your invoices to a specialist company that will chase your clients on your behalf. The result: you get paid on time and have healthy cash flow. You won't get an extra cash injection, but getting the money you're owed quickly could be key to expanding effectively.

Pros

  • Provides near-instant invoice payments
  • Frees up your time (no more chasing customers for payment)
  • Many factoring companies offer a trial period, so you can see if it is right for you before you commit

Cons 

  • You'll have to give up some of your revenue
  • It's not a way to raise money to start up or expand - you're only getting what you already earned

3. Commercial mortgages

A mortgage is a type of loan used to buy land or buildings. You can also take out a mortgage on property you already own, allowing you to make use of the money tied up in it.

Pros

  • Offers tax benefits
  • You will no longer be at the mercy of a landlord
  • Tailored to suit your repayment expectations and budget
  • Limits capital expenditure, freeing up cash for business ventures
  • Could be cheaper than renting

Cons

  • If you can't keep up, you could lose your premises
  • You'll be responsible for upkeep of any property you buy
  • Requires you to have the money for a deposit

4. Venture capital

This is the idea behind TV series Dragons’ Den: selling a stake in the business for cash.

Be warned though: most venture capitalists shy away from providing start-up cash and look to buy into a business when it requires second-stage funding to take it to the next level.

Pros

  • Some venture capitalists may help steer your business in the right direction
  • The investor is taking on some of the risk
  • Investment can help to convince others of the strenght of your business

Cons

  • You'll have to give up some control of your business
  • You're unlikely to get funding for a start-up
  • You'll have to negotiate a good deal with an experienced businessperson
  • Investment deals may come with extra terms and conditions

5. Business loan

It is quite common for company start-ups to approach a lender for a business loan.

A lender will want to see a detailed business plan before handing over any cash. They may also expect the loan to be secured against some form of collateral, an asset such as property, that could be forfeited if the business becomes insolvent. Be warned though, securing a loan against property is risky.

Pros

  • People tend to feel more comfortable with a loan because they have a greater understanding of them
  • Having to convince a lender to take the risk can help identify problems with your business

Cons

  • You'll have to make repayments - whether business is going well or not
  • Ultimately, you'll pay back more than you borrow
  • A secured loan could put your assets at risk

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