‘There are a number of funding options available to smaller firms. You can re-mortgage part of your property if you have one or be a little bit creative with credit cards if you have the confidence – I think if you need £5,000 to start up, credit cards can be one of the cheapest forms of borrowing, but for larger sums I wouldn’t advise it.
‘If you can demonstrate that your idea will work, then personal bank loans can be a good idea, but it’s wise to remember that this means you take on personal responsibility for the capital and its repayments. If, however, you’ve got a bad idea and you’re struggling for funding, I’d say that you’re pretty much stuck. People who are going into business frequently think that the idea they have is great, but are mistaken or want to go into highly competitive industries where it’s very difficult to succeed.
‘If you’re coming up against successive barriers to funding, you do need to be able to take a good, hard look at the business and decide if it’s truly viable. If you can get some objective advice, then all the better, but try to avoid asking friends and family if you can; they often won’t want to say if they think it’s a stupid idea.
‘If it’s short-term finance you’re looking for, you could think about invoice factoring, which banks often prefer to an overdraft. If, for instance, a customer ends up not paying their bill, you could be at risk, but factoring companies are usually quite stringent about credit checking your clients. Invoice factoring is a good option at an expansion stage, when you’re taking on new staff or need to sort a cash flow issue – but if your company is going bust it won’t help.
‘You could also consider applying to the Small Firms Loan Guarantee Scheme, through which the Department of Trade and Industry offers to underwrite 80 per cent of the risk for loans of up to £250,000. Whichever route you choose, my advice would be to be realistic about the amount you’re targeting, but make sure that you have a cushion in the plan for working capital, as well as budgeting for initial costs.’
