How to Finance Your Small Business Start Up

Everything starts with a great idea, an idea that was probably in your mind for a long time. Have you solved the product, how you're going to deliver your service, where you are going to set up your office and how you plan to market your new business. But the obstacle always seems to be the funding to get you going.

Finding funding for a small business from the ground is an important issue for any potential small business. Some new businesses lend themselves to very little startup capital, because the main selling point is the owner's skills and knowledge, such as consultants, web designers, public relations experts. Companies that require inventory, plant and equipment and other investments, face the challenge of getting their start-up finance together.

So what sources can draw on to ensure your business gets off to a good start?

The savings

The first port of call! If you have been working for some time then before going on your own you should have some money in reserve behind you. If this be in the form of money in a savings account or stocks and mutual funds, this is a good start to the fundraising exercise.

It may be more focused in saving cash if you have had the goal of creating business for a while '. Knowing you need to save to get your business off the ground will make sure not to spend your future nest egg into useless objects. While a new plasma TV or the latest DVD Recorder may seem like an essential purchase, knowing you have a business to set in the future will be sufficient deterrent to keep the checkbook firmly locked away!

Keep Your Job

Some entrepreneurs are fortunate enough to have during the first days of the business can keep the day job, while working on the business during the evenings and weekends. This has two advantages. First, they are still earning thereby allowing more time to build a cash reserve. Secondly, it is an opportunity to test the business to ensure that there is a market.

Make sure you can realistically keep both balls in the air at the same time, otherwise you end up doing no justice to your work or your new business. The support of your family is also essential if you follow this strategy. They must accept the fact that what was 'family time' may need to take a step backwards until you decide to focus on the business full time.

Family and friends

These can be a useful source of funding for each start up. If you have nurtured ambitions to run your business for a time, then many of your family and friends are already in a position to know your idea. You should then have an indication that it is for and who is against it.

If you have not shared your secret desire, then it is time to be a little 'sneaky! If you are in the early design phase begin to drip feeding your ideas to key people that you think are likely to support you. Tell them your ideas, share your ambitions and goals and update them on a regular basis with your progress. The plan is to get sold on you and your future activities at an early stage.

Once you get to where you are ready to start asking for contributions hold an Investor night. Prepare a presentation outlining your plans, your business, the market etc. Show the potential investors what their return will be in recognition for supporting you.

Invite as many people as possible and promise an interesting and fun evening, Be bold at the very beginning, telling them exactly why they are there, so there are no misunderstandings. After the presentation gather all the names of people who want more information or even a one-on-one with you.

While this group are people who know you and are therefore more likely to trust you, do not forget that you are developing a very different relationship that can quickly turn sour. Be prepared for rocky times!

Bank line of credit or loan

Now you're getting into serious stuff! Getting support from a bank for a new business is tough, as many entrepreneurs will testify. A sneaky way is to ask for an unsecured loan while you are still in employment. If you plan things right you know when you start, so a couple of months before starting your work, ask for a loan based on the salary. However, make sure you can comfortably meet the repayments. There is no grace period, you are required to pay immediately, so that companies will start making money very quickly.

The alternative is a business line of credit. There is no fixed repayment date, although it will be for a period of 6 to 12 months, and all you have to do is make sure you keep within the overdraft limit. You will need to write a business plan to present to the Bank that outlines its vision and the business.

Mortgage or equity release

With house prices the way they are improved over the last few years, the vast majority of people now have substantial value in their homes. The cheaper alternative to bank accounts or loan is a mortgage. The interest rate is lower and, as the repayments are spread over a longer period, the monthly repayment is less (even if you end up paying more interest in the long term).

The disadvantage of increasing money in this way is that your home is potentially at risk. If you meet the monthly repayments depends on what the company can generate then a slow start could cause cash flow problems. So, be very sure you can meet the repayments even during a lean period.

Credit Cards

If you do not have any savings, they can not get support from family or friends, or a bank loan or a mortgage, then there are credit cards! However, while it is easy to draw down on paper, to be cautious! Credit cards are the most expensive form of debt.

They are ideal for all that you may need to do is pay the minimum amount but card debt, as most people have discovered, can be a long-term weight. But, if you need a lump sum of cash to launch the business and you know you can pay within a few months, then it is an alternative source of financing to consider, if unorthodox!

Business Grants

Scholarships are available for business industries, sectors and reasons. Grant providers usually only give a part of the requirements, so they can be used to fully fund a start-up. However, it may be useful to bridge a funding gap.

Business Angels

A popular way to finance a business are Business Angels. These are people, business people or retirees and their usually successful, who are looking for opportunities to invest in new businesses.

In exchange for an investment that generally seek a stake in the business and some hands-on involvement. They will have a wide experience of business and therefore are useful to get people on board. However, you will have to accept an element of loss of control, but must be balanced with your desire for funding.

Obtaining financing for your new business can be a challenge, but there are a number of avenues to explore and then with the dedication and concentration may soon be on track to launch its own small business .......