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The Right Funding for Your Business Type

by Tim Berry

Venture Capital
You probably know who you are because you’ve been there already. Venture capital firms want repeat entrepreneurs. They want plans with huge growth rates, in high-growth industries — usually high-tech as well as high-growth. They want excellent management teams with proven track records. And they want plans needing multiple millions of pounds. They invest in new businesses in exchange for substantial ownership, generally more than 50%.

Angel Investors
This group includes hundreds of individual investors, investment clubs, local investment groups, and others. They are hard to categorise and hard to describe as a group. Angel investors act a lot like venture capitalists in their dependence on business plans and management teams to evaluate businesses, and they also like high growth and high return, but they are more likely to invest smaller amounts. Angel investors will also sometimes accept less ownership than venture capitalists, in some cases as little as 5-10%. However, there are no simple guidelines or standards on this, everything depends on the specific case.

Bank Loans
Banks loan businesses money for working capital and even occasionally for expansion, but not without solid security. Banks don’t generally invest in new businesses or new business plans, for good reasons. The government doesn’t want banks taking undue risks with depositors’ money. If you don’t have solid security, or if you aren’t willing to risk what you have, then don’t expect to get loan financing from your bank.

Small Business Guaranteed Loans.
There is a small business loan guarantee scheme for small businesses who are failing to raise loans due to lack of security. The guarantee can cover up to 75% of the loan and it covers loans of up to £250,000. For more information visit the following site: www.businesslink.gov.uk/sflg/ (Correct as of March 2008)

Friends and Family
Many businesses start with financing from friends and family. This is sometimes the only way to start a business, but it is also full of potential problems. Go very slowly.


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Self Financed
Many businesses start without loans or investment, and many more businesses do their business plans without needing outside financing. If your numbers are strong enough to go without outside money, congratulations, that’s a very good thing as it means that you can focus on growing the business without needing to focus on servicing debt or having to be accountable to external parties.

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