Company formations

Raising money for your startup

At its inception, your business needs funds to help it get off the ground. That’s why it is vital at the outset, after you have considered how much money you are likely to need, to research how you will go about obtaining the required funds. You may be eligible for government funding, have a business angel who is interested in your idea, or you could simply be going to the bank to request a loan – but no matter where you intend to raise money for your startup, you will need to have adequate information at hand to be able to demonstrate your business’s viability, financial projections, as well as the fact that you have the skill and drive to be able to make the business work.

Your Character

Potential lenders also make value judgements on the type of person you are, so it’s important to bear this in mind before you approach them. If you cannot instill confidence in the lender that you have the skills and dedication to be able to make your business work, have the knowledge to succeed and the ability to ride tough times, the lender might think twice before agreeing to lend you money.  

Business Viability

It is equally important to ensure that the lender is convinced that your business is viable: that there is enough demand for goods or services; that your cashflow projections allow you to cover any loan repayments as well as keeping you in business, and that you have considered all eventualities so that you are prepared for whatever the future holds, and can work hard to overcome any obstacles.

Business Plan

A well-written, detailed business plan is obviously an important factor in raising money for your startup business. You should be able to show that you have considered the cost of overheads and have a realistic idea of profit margins. Lenders are wary of businesses that rely too much on one customer or one supplier – if either of these fail, it could also mean the end for your business so if you are concerned about this then ensure that you have a plan as to how to spread these risks going forwards.

Security

Be prepared for your lender to request some form of security from you. This is very common and is intended to be a last resort for collection of the debt should all else fail. It is also viewed by banks and other lenders as proof that you are serious about your start up business, although it should be noted that security is never the main factor in commercial lending decisions.  However, it shows personal commitment to your business if you are willing to invest some personal capital, as well as showing that you have some reserve funds to improve cashflow or to counter any losses.

Consider Your Options

It is also a good idea, before you approach a lender, to have an idea of exactly the type of finance you need. Sometimes an overdraft is appropriate, whereas other businesses would benefit more from structured finance, such as a loan. Be prepared to discuss the options with your prospective lender, and have a set figure in mind as to how much money you need to raise for your startup: while it is never financially astute to request substantially more than you need, asking for too little can be even more counterproductive.

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