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Start Up Funding for Small Businesses

Having established a new business idea and put together a business plan the next step is to secure funding to put the idea in to action. There are many different sources of finance for start ups. The key is to examine these sources and decide what is most appropriate in the circumstances.

Sources of Funds for Small Business Start Ups:

1. Banks

Before contacting a bank it is important to have a solid business plan and cash flow projections. Without these it a bank is unlikely to consider finance, of which there are two main sources, an overdraft and a loan. An overdraft facility should be used mainly to overcome occasional cash flow shortfalls, either due to slow client payments or seasonal demand factors. An account which is consistently in the red builds a track record which may make it difficult to secure future funding. When requesting a loan, have a clear purpose for the funds. Consider the loan term and what is affordable in terms of monthly interest payments. Shop around.

2. Grants & Government Support

A grant is a sum of money provided to a business for a specific project or purpose. It is unlikely that a grant will cover the full costs of a project but the advantage is that any funding doesn't have to be repaid, nor does any business equity have to be forsaken. The starting point in the search for a grant should focus on particular regions or industry sectors which are being favoured by national, local or European government bodies. Visiting a website such as Business Link is a good first step.

3. Venture Capital

A venture capitalist will generally offer funds for a new business idea in exchange for equity in the business and occasionally to have a say in the management of the company. A search for funding through venture capital can be onerous and may involve many meetings and rejection. Be prepared for this. Look of for people who can add value to the relationship rather than just funds. People who have expertise in a sector or who can open doors with important contacts.

4. Friends and Family

Friends and family can be an easy source of funds but should be treated with caution. Bringing friends in to a business can lead to tensions which affect relationships. Also, people who are emotionally supportive of the business owner may be blind to flaws in the business plan. This lack of objectivity can hinder good decision making. Treat friends and family exactly as other sources of funds and put everything on a solid business footing with clear terms, conditions, benefits and dispute procedures.

About the Author:

The Virtual Office Group was established in London Piccadilly in 1980 to provide office and support services to SME's. The "Virtual Office" telecomms solution allows non-resident city professionals to project a central London address and phone prefix. If you want to find out more about virtual offices, visit the Virtual Office website at www.voffice.com/

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