We, at Adiva Accountants in Bickley, summarise the means of finance that are available and where we can help if you are starting, or have started a business in Bickley, Bromley, Kent and London areas.
The most fundamental aspect of business management is the financing of the business. If you get the financing right and you will have a stable business, positive cash flows and a profitable enterprise.
The finance can be obtained from many different sources. Please find below just some of the means of finance that are open to your business.
The bank loans and overdrafts
Their own bank is the first place that most people think about when trying to obtain finance. The banks are actively seeking for businesses to whom they can lend money. The banks prefer to give an overdraft or to extend the limit, especially in small and start-up situations. Bank overdrafts are a flexible form of finance which can be paid off more quickly than a formal loan. If an investment opportunity arises in order to finance the project, you could look to extend the options on your overdraft facility. Many businesses prefer the advantages of a fixed term loan. The regular payments to be made on the loan make cash flow forecasting and budgeting more certain. For many owners, it is important that the bank is more committed to their business for the whole term of the loan. An overdraft can be called in but, but unless you are not able to make payments on your loan, the banks cannot take the finance away from you.
The smaller loans will not usually require any security. However, for large amounts of money the bank will certainly ask for some form of security. While it is common for business owners to offer their own homes as security, for high risk borrowing you may prefer not to do this. We advise anyone offering their house as security to consult first with any co-owners. It is important that they are fully aware of the situation and of any possible consequences.
The Enterprise Finance Guarantee Scheme may be another source of security. A start-up business unable to provide any other form of security may be able to get a guarantee for loans up to £1,000,000. Under this scheme, you pay a 2% premium on the outstanding balance of the loan. In return, if you default the government guarantees to repay the bank (or other lender) up to 75% of the loan.
Savings and friends
When commencing a new business, very often the owner invests his personal savings. Often the business start-ups approach relatives and friends to help finance the business. You should make it clear to them that they should only invest amounts they can afford to lose. You should show them your business plan and give them time to consider it over. After that, if they decide to invest in your business, you should always put the terms of any agreement in writing.