Choosing the right type of financing for your business 

Embarking on a new business venture presents new challenges. One very important arena of business planning and management is deciding upon the right type of financing. There are hundreds of different methods to choose from, but in order to get the most out of the finance option you choose you must ensure it is a good fit for your business.

Debt Financing

Going into debt might sound like a converse idea but in reality you have to have money in order to make it, so garnering debt is not a bad investment to make. There are several ways you can debt finance your business. One way is through private debt. Depending on the type of company you wish to start you may be able to apply for a credit card with a small loan amount. Even up to £5,000 may be enough to cover startup costs.

Bank Financing and Overdrafts

Another method is through banking loans or overdrafts. Even if you don’t require a large amount of finance for your startup you may find it helpful to develop a solid relationship with a bank for future endeavors. In order to get a loan you will have to show the bank that you are committed to the business, have a comprehensive business plan that covers how you will handle repaying the debt, and provide the bank with collateral for the loan against personal or other business assets.

Generally speaking, businesses that opt for bank financing require a larger sum for starting up the company than businesses who choose personal debt financing. However, borrowing more than is necessary is still a positive investment as long as the loan is paid back on time.

Overdrafts, on the other hand offer a short-term option for businesses that need a small advance on their financing. There are downsides to overdrafts such as higher interest rates, they are repayable upon the banks request, and cheques may bounce if an overdraft limit is exceeded. It is therefore vital to weigh the consequences of overdrafts as a means of finance.

Whether you are starting a new company or need a slight boast in your financing, these options are beneficial on many levels. It is up to you to make the best decision for your business to be successful however support is always at hand and your Chartered Accountant can help you to understand which options are best for you.