Author: Ian Betteridge
Date: 09/01/2009
In tough times, there are many challenges for both new start ups and existing businesses. Possibly the biggest challenge you’ll face is raising any capital you need.
Although banks are still willing to lend, they have become much more picky about who they’re lending to. This means that you should expect to put more of your own money into any deal that you’re looking to finance. The days when banks would happily lend most of the cash you needed to finance something are over.
If you own your own house, a remortage would have been a potential option if you need to raise your own funds. But with the house market in a slump, and banks less willing to lend even against a property, this isn’t as attractive as it once was. So what are the alternatives?
As Peter Jones told us in an interview last year the best option is always to “go where the money’s cheap.” Talk to friends and family and see if they will invest in your idea. Look at government and local authority grants which are likely to expand in scope if the employment situation becomes more difficult.
Your next port of call should be private equity – essentially, sacrificing some of your stake in the business in return for investment. There are plenty of private equity houses around which will be willing to look at your business plan (and now is a good time to revamp your business plan if you already have one). But remember that private equity houses receive hundreds of business plans per year, and invest in (at most) a handful of them. Your business will need to stand out if you are likely to get the money.
Again, if at all possible it is far better to use your contacts to get an introduction to someone rather than relying on open applications. A personal connection will greatly improve your likelihood of getting your business plan read and responded to.
If private equity isn’t available, and all other options have been exhausted, don’t allow yourself to get too disheartened. Persistence is one of the key characteristics for a successful business life. Go back to your business plan, sharpen it up, and head back to your bank – it may feel like being back to square one, but if you don’t keep trying, you’ll never be successful.
Tomorrow, we'll look at some free tools you can use to keep costs down when starting up.