Business Banking – Finding The Finance You Need

All businesses need money to start up, and run successfully. Before you start making an income from your enterprise, you will need to find sources of funding to cover the costs. Your expenses will include capital costs and running costs – capital costs are one-off, initial expenses such as buying equipment or setting up a website. Running costs include things like paying staff, rent and rates and all ongoing payments.

Government enterprise schemes can offer grants and loans with low interest rates to help you get started. Often these will be for specifically capital or running costs. (Enterprise grants are tax-free income.) However, it is quite likely that you will need to additional finance, and most people will approach banks for a loan or overdraft.

In either case, you will need to show the bank that you are a ‘good risk’ – prove that you will be able to repay any money that they lend you. This will involve showing them a combination of two things: a good track record in managing your finances; and a well thought out business plan. You will normally be expected to invest some of your own money in the business too. Business assets can be used as security for the loan – but remember that if you are not limited by guarantee you are personally liable for any business debts.

Overdrafts

An overdraft offers a flexible way to fund your day to day finances, and is the most common way to borrow funds from a bank. When agreed, the bank will set a certain limit to your overdraft and you will be liable for charges if you exceed this. Bear in mind you will probably have to pay an arrangement fee, as well as interest on the overdraft. The bank can also cancel the arrangement at any time, meaning you’d have to pay back any outstanding balance immediately.

Loans

For longer-term financing, a loan may be a less expensive way to borrow. Terms and interest rates vary by provider, and can often be negotiated. As well as banks, there are various lenders offering loans, including specialist loan providers. Check all small print carefully before entering into a contract, and take the time to compare different lenders. You will normally be required to pay back a certain amount every month, although there may be scope for more flexibility if you discuss this with your advisor or lender.