Financing Your Business

2. Investment Finance

It will be difficult to borrow money from a bank unless you can point to an adequate financial base of money invested in the business.

2.1 Some will usually be your own capital.

• You may have cash you have saved or investments you can sell.
• Taking a mortgage on personal property, then lending the money to the business, can pay off. Mortgage rates are below business lending rates, there are no arrangement fees and some lenders will advance up to 95 per cent of a personal property's value. Some mortgages have flexible repayment arrangements that can help reduce the risk of defaulting.

2.2 You may be relying on family and friends who are willing to invest in your business.

• Make it clear that they should only invest amounts they can afford to lose.
• Show them your business plan and give them time to think it over.
• Discuss several what-if scenarios. For example, what if you go bust or want to pay yourself a big salary or expand or relocate or take risks or hire staff?
• Put the terms of any agreement in writing.

2.3 Your business may attract outside investors.

• You are unlikely to interest outside investors unless you can show a strong track record and a credible business plan.
• Investors - who purchase an equity stake in the business - will expect to be offered high potential returns to compensate for the risk they are taking on. The British Private Equity and Venture Capital Association (BVCA) offers useful free publications that contain advice on finding private investors and venture capital companies. Another good source of information on venture capital funding is the British Business Angels Association (020 7089 2305).
• If you use a broker to find private investors you should expect to pay £50 to £350 in fees plus a percentage of any money raised.
• Government-backed regional venture capital funds will invest up to £500,000 in English companies. Check with your local regional development agency for details of their scheme.
• Most venture capital companies will not invest less than £1 million because of the high cost of investigating investment opportunities.