Personal savings areprobably the easiest and most cost-effective way to provide your own fundingfor a new business, this is because you do not have to repay anything. However,this can be risky, and you may not have enough money to cover all the fundingyou need. You could also consider: · Gettinga mortgage – or a second mortgage.· Borrowingmoney from your parents.· Sellingyour personal belongings.
Advantages· Youdon’t have to worry about paying back bank debts or overdrafts, with overdraftsthe bank can make you pay back the money you borrow whenever they want and thiscould cause issues to your funding.· youwill have full owner ship over the company and will get 100% of the profitDisadvantages· Byusing your own money to fund your business you reduce the amount of money youcan use for luxuries and other needs, this means that you may have to makereductions on certain things like buying a cheaper car and downgrading to asmaller house.· Ifyour business takes a turn for the worse and you have to close it down, you mayhave to sell your car and even sell your house.
· Bystarting your own business you will have to make your own contacts andmentoring, this is a lot more difficult because investors will usually set thisup for you.Nibusinessinfo Sourceof funding 2: Bank loan A bank loan would be oneof the more obvious choices since it is probably the easiest way to borrowmoney, you can borrow money over a short or long term period. Disadvantages of bank loans are: · Witha bank loan you have to pay APR (Annual Percentage Rate) this means that youwill have to pay money on top of the amount you take out. So say the APR is4.1% then you will have to pay the annual interest rate as well as the fees foryour loan, The 4.1% APR is fixed meaning that you will only pay 4.1% even ifthe APR changes over time.
For example if you took out a loan of 20,000 over aterm of 60 months (5 years) with an APR of 6.8%, you would pay back 392.23every month for the 60 months and repay a total of 23,533.80.With banks you canchoose from two years up to 5 years to pay back the loan, paying back a fixedprice every month. · If you take out £20,000, the amount canchange over the period you take it out for, no matter what the APR is you willpay more for borrowing the money for longer. So, if you borrow £20,000 over thecourse of two years with an APR of 6.8%, you will pay back £891.
80 a month andpay a total of £21,403.20, however if you take out £20,000 over the courseof five years, with the same APR then you will pay back £392.23 a monthand pay a total of £23,533.80. This means that by borrowingfor a longer period you pay back around £2,130 more than you would whenborrowing for a shorter period. Advantages of bank loans are:· The period of time you choose to payback your debts is fixed, meaning that the bank aren’t able to make you pay itback on demand (unless you breach the terms and conditions of the loan)· Even though you must pay APR on yourloan you do not have to give any of your profit to the lender. Sourceof funding 3: Bank overdraft A Bank overdraft is alsoquite an obvious source of funding since the bank is usually the first placepeople look to get money. A bank overdraft is when the bank allows you to spendmore money than the bank account actually has, however the money that you usemust be returned to the bank and usually at a high interest rate.
Disadvantages of Bank overdrafts:· Theycan demand for the money back at any time, this can be bad because you may nothave the money to pay it back or may have not reached a stable point in yourbusiness where you can afford to pay it back.· Ifyou want to extend the period of your overdraft then you will have to pay a fee.· Ifyou do not arrange an extension to your overdraft and you exceed the limit thenyou will be charged. Advantages of Bank overdrafts· Thiscan be useful for smaller businesses because they can use the overdraft to helpthem with getting enough money to start up their business· Itis fast and easy to arrange, this means that they can use the overdraftwhenever they need.· Itis more flexible than a loan in the sense that if you want to borrow £3,000then you can, but with a loan you can usually only borrow a minimum of £10,000. Source of funding 4: Venture capitalistsVenturecapitalists are a less obvious source of funding. Venture capital funding is atype of private equity investment, this means that they will give you fundingover a long term at the cost of a share of the business.
Venture capitalist fundingis usually for businesses that want help starting up, and if the venturecapitalists thinks that the business will be successful then they will investin the business. An example of a venture capitalist is the television show ‘Thedragons den’.