Funding your first business

• Hire Purchase Hire purchase is an agreement to buy an asset through repayments to the finance company over a period of time. Available from most high street stores, agreements are usually quite flexible, for example interest free periods, provided you have a good credit rating. On the other hand, you will still have to maintain the equipment even though it does not legally belong to you until the final payment.
• Leasing: Leasing is similar to hire purchase however the finance company buys the assets from the manufacturer and the agreement between you and the company is tailor-made. You can lease assets ranging from photocopiers to cars. Unlike hire purchase, you never own the assets but you are not restricted to what is available in the retail outlet. There are also tax benefits, as you do not pay tax on the costs you incur. Unfortunately, it can be difficult for small companies to obtain leasing finance.

Equity Finance explained

This provides large amounts of medium- to long-term finance. Investors only profit if your business succeeds. It is suited to businesses with ambitious growth plans such as Lastminute.com's need to buy out other businesses in a bid to build the UK's leading online travel business.

Advantages

• No security is required
• Investors bring experience and contacts

Disadvantages

• An amount of control and share of the business is lost
• Investment decisions can take months

Business Angels: These are private individuals who invest their own funds in small businesses and sometimes contribute hands-on assistance. They typically invest amounts between £10,000 and £250,000. With this option, the business can retain more control than with venture capitalists. For more information, contact the National Business Angel Network.

Venture Capitalists: These are professional investors providing amounts upwards from £250,000. This option is more suited to a company forecasting a rapid growth rate, with an ambitious team that will require a series of cash injections, a perfect example is almost any dot.com business. The British Venture Capital Association provides a directory of venture capitalists.

Remember that there is a finance option for everyone, and if you get knocked back by one financial institution it doesn't mean you won't get accepted by another. The key is to have a good understanding of the financial projections of your business and work back from there. Stay positive and good luck!

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