Sources of finance

SOURCES OF FINANCEBUSS1

Ms Rose

For a start-up!• Remember the focus for Buss1 is a new

business starting up.• Therefore the source of finance has to be

appropriate to the scenario.• Finding finance can often be a major problem

to an entrepreneur.

Raising finance for start-up requires careful planning

The entrepreneur needs to decide:• How much finance is required?• When and how long the finance is needed for?• What security (if any) can be provided?• Whether the entrepreneur is prepared to give up

some control (ownership) of the start-up in return for investment?

taking account of these key areas:

• Set-up costs (the costs that are incurred before the business starts to trade)

• Starting investment in capacity (the fixed assets that the business needs before it can begin to trade)

• Working capital (the stocks needed by the business – e.g. raw materials + allowance for amounts that will be owed by customers once sales begin)

• Growth and development (e.g. extra investment in capacity)

SINCE the outbreak of the credit crunch, the tortured issue of small-business lending has become more and more complex.On the one hand, the banks swear blind they are open for business but claim they face a lack of demand from small enterprise. On the other side of the fence, small businesses complain they are being turned away or the rates on offer are extortionate. From The Scotsman – 18/10/11

Friends and Family

GRANTS & OTHERGOVERNMENT SUPPORT

BANKS• The logical place to start.• Many business start-ups want the reassurance

given by face-to-face meetings at their local bank.

• A bank loan is a formal arrangement.http://www.smarta.com/advice/business-finance/start-up-finance/how-to-get-bank-finance---advice-for-start-ups

AKA Loan Capital• A form of external finance.• 2 main types:1. Bank Loan2. Overdraft• Require a sound Business Plan and probably

Collateral• Both have advantages and disadvantages

Friends and Family• Often the only realistic source for a start-up• Has obvious potential pitfalls

• http://www.youtube.com/watch?v=pWNDVln3wd4&feature=fvsr

Business Angelshttp://www.youtube.com/watch?v=9AyKoUUB_d8Business angels are wealthy, entrepreneurial

individuals who provide capital in return for a proportion of the company equity. They take a high personal risk in the expectation of owning part of a growing and successful business.

Suitable for between £10000 - £250000

Venture Capitalists• http://www.youtube.com/watch?v=azRzqI3BJ2A&feature=relat

ed

• Venture capital = long-term, committed share capital. • Invested in exchange for an equity stake in the business. • The venture capitalist's return is dependent on the growth and

profitability of the business. This return is generally earned when the venture capitalist "exits" by selling its shareholding when the business is sold to another owner.

• Usually a specialist business NOT an individual

Grants & Government Support• These maybe available if the business is

located in a deprived area.• There is strong competition for grant schemes.• Grants usually only cover a percentage of the

costs - matching funds have to be provided.

Your own money• Arguably the most important – if you will not

risk your assets in your enterprise; who else will?

• Credit Cards, Savings, Inheritance, Mortgaging home, Selling assets.

Case study• http://www.smarta.com/advice/business-fina

nce/start-up-finance/how-i-raised-alternative-finance

• http://www.tutor2u.net/business/quiz/startupsmarkets/quiz.html