Unless you can count on the proverbial rich uncle, you will probably need to raise some money to get your business going. And if you do have a rich uncle, he probably got rich by asking exactly the sort of questions any other source of finance will ask. The only difference is that he knows you – that may be a blessing or a curse!
What can WBM do to help?
We can help you to navigate the uncharted forest of finance options. First, a few terms to describe the landscape:
Equity finance: the financier will buy a share (actually a number of shares) in the business. He will own part of the company and will benefit from any profits and share price growth.
Debt finance: the financier will lend money to the business, and will require repayment on agreed terms. He will not own any of the company.
Within the debt finance arena, there are various options:
- Straightforward loan – the same as you take out to buy a car. What security can you offer? Be careful about offering your house (and doubly careful if you have an outstanding mortgage!). If you have no security, at best you will pay far higher interest, and most likely you will not get a loan at all.
- Cashflow funding – the lender offers you a “line of credit” that allows you to borrow up to a certain amount (essentially an overdraft) based on your known and projected revenue. This means you don’t have to wait for customers to pay before you can spend. The downside is if your revenue drops you may not be able to maintain repayments.
- and so on. There is a myriad of ways to slice this pie.
Are you trading? In other words, do you already have an income from customers?
If so, is it profitable? This is not essential, but it helps (note: some of the biggest and fastest-growing new companies are hugely unprofitable. Look at Uber for a good example!)
“No, not trading yet.”
Sorry, the answer is likely to be “no” from both equity and debt financiers. They want to see concrete results – a real, working, business. Debt financiers, in particular, are bound by regulations: they are not permitted to lend to any company that cannot show that it can “service” the loan (IE make interest and capital repayments). If you have no income, you can’t service a loan!
So how do you get past that hurdle?
Friends and family. Do any of these trust your idea and your abilities enough to invest or lend? Do they HAVE any money they can use for this? This is one of the best ways to start, as it shows “outside” financiers that people who know you are prepared to back you.
Your own assets. Can you raise or increase a mortgage (mortgages are very cheap forms of finance because the security is a very concrete asset (although your house may not be built of concrete!). Once again, you’ve shown that you are prepared to risk your own money on this idea.
Let’s set aside the “are you profitable?” bit, as that just changes the exact terms you get.
Now you can go to a variety of funding sources – with that well-polished Business Plan that WBM helped you to write – and have a sensible conversation.
We won’t go into all the possible sources, but there are many options, both conventional (banks, individual or corporate investment houses, etc) and more innovative (peer to peer lenders, crowdfunders etc). They all have advantages and disadvantages.
WBM will help you navigate the forest.
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