Thousands of business loans are available from banks to help fund your business

Women thinking of starting a new business should not be put off by the prospect of raising money. As we outline below, with a sound business idea, there are numerous ways of raising cash to support your venture.

The real problem, according to Steve Cooper of the small business arm of Barclays Bank, is that owner-managers tend to ‘love the thing they do’, but neglect the finances. If you do manage to raise money from other people, this means that your business idea is good enough to convince them you are worth investing in. However, 2008 is going to be a tough year: house prices could fall, lenders could be more wary about lending and everyone is expecting more small businesses to fail. Separating the survivors from those that go under could well be attention to detail on the finances to ensure that you do not get into cash flow difficulties. So, if you keep yourself well-organised on the money side you will be at an immediate advantage over other small businesses. Here are 10 ideas on how to raise the cash your business needs.

1 Save before you start up
The simplest ideas are often the best – and this particularly applies in business finance. If you borrow commercially you could easily pay over 10% a year in charges – so if you have redundancy money or an inheritance, for instance, it could serve you very well if you invest it in your business.

2 Borrow from friends and relatives
It may sound too informal to be business-like, but borrowing from your nearest and dearest can be cost-effective for everyone. Business Link, the government advice service, describes it as ‘an easy and flexible route to finance’. However, make sure you have a proper loan agreement in place, which includes details of the length of the loan and interest rate, because one of the quickest ways to fall out is to borrow money without properly agreeing and recording the terms. And do not borrow money people cannot afford to risk – such as your widowed mother’s only savings.

3 Borrow from the bank (but not on credit cards)
Thousands of different types of loan are available from hundreds of banks – and they have become more flexible in their terms. The best rates on business loans are likely to vary between six and 10% in 2008, depending on who you borrow from and for how long, how much you need, what sector you are in and how risky your bank perceives you to be. Check comparison websites for precise details of loans available. Entrepreneurs can get better rates if they secure loans on their own homes (you may struggle to get a bank loan without it being ‘secured’ in this way). Overdrafts can be useful in emergencies, but charges on loans are cheaper. Many people do finance businesses from their credit cards, but this is a false economy because credit card interest rates are notoriously high.

4 Research government grants and support schemes
The most difficult aspect of getting grants is probably finding out about them. There are now around 3,000 different kinds of government support schemes, but if you go to your local Enterprise Agency and visit sites such as Business Link you will rapidly find out more. The Enterprise Agency in Wear Valley Teasdale, for instance, has helped small businesses secure £1.5 million of grants in the last three years. Schemes range from grants to help get loans - under the Small Firms Loan Guarantee Scheme, to Stamp Duty Relief in disadvantaged areas and free business consultancy.

5 Seek out the Prince’s Trust
If you are under 30 and starting up a business, you could be eligible for a Prince’s Trust low-interest loan of up to £5,000 (as well as free advice from an experienced business mentor and access to a free legal helpline). The Trust helps 37,000 people a year, particularly the unemployed, educational underachievers and others who are disadvantaged.

6 Pay creditors late
First things first: this is not a nice way to do business. In most cases, you will be expected to pay your suppliers 30 days after they have invoiced you. So if you are in an area, such as manufacturing, which involves high expenditure levels, you can improve your cash flow and effectively fund your business by paying late. And many firms do get away with this routinely by paying three or more months in arrears. But it is not ethical and, in a world which talks more of ‘corporate social responsibility’, your ungallant behaviour will be noticed and will not help your overall reputation.

7 Ask customers to pay in advance
Far better than exploiting your creditors (point 6) is to ask your customers to support you by paying in advance or, at least, promptly. ‘If somebody really wants to use your business, they might do that,’ says chartered accountant Richard Murphy. However, make you arrange when the customer will receive the goods or service, and stick to the deadline.

8 Get venture capital investment
Once your business is well established and powering ahead you may want to rethink your financing methods (as family money often comes with certain conditions or emotional pressure and bank funding can be expensive). Private equity or venture capital specialists usually invest in your company for a period of up to seven years, taking up to half of the shares. Leading private equity house 3i explains when such investment is most suitable: ‘The most common examples are when a company is considering growing their company exponentially, making an acquisition, looking to organically grow the business, perhaps by investing in a new factory or overseas operation, restructuring the balance sheet (for example trying to decrease debt levels) and restructuring the shareholder group through a private placing.’

9 Sell on your invoices (‘factoring’)
There are several companies around who will buy your sales ledger (that is your invoices) from you – giving you cash up front while they wait to receive the money from your customers. ‘The costs of factoring are usually reasonable,’ says Business Link. ‘It’s a competitive business with many suppliers, so it pays to shop around.’ You tend to pay charges of about 1.5 to 3% over the bank base rate (that is between 7 and 8.5% at the start of 2008).

10 Lease cars and computers
If you do not have the cash to buy the computers, cars and other equipment you need you can go the well-worn path of leasing. A finance company buys the equipment on your behalf and you then pay a regular monthly sum to that company. You will pay interest to them on the amount outstanding each month (rather like a mortgage) – so it will cost more than if you bought it outright. However, you can usually offset all leasing costs against tax. There are all sorts of deals you can arrange – including the finance company agreeing to update your computer equipment throughout the agreement rather than forcing you to keep using the same, increasingly outdated software and hardware. Finance & Leasing Association – the industry body which deals with leasing (020 7836 6511)

Getting the numbers right
Getting a good accountant to advise you could make all the difference to ensure your chances of business success, but you need to ensure that they understand your business and exactly what you want from them.

So – although personal recommendation can be very helpful – you do not want to go to the traditional pinstriped accountant recommended by your lawyer uncle if you are a 23-year-old fashion designer who wants to communicate with your advisers by text.

There are two kinds of accountant you need – one who will work in-house for you when your business takes off and you can afford staff; and also, external advisers, who will audit your books if you are in a limited company, advise you on business issues and sort your tax.

For your in-house accountant, you will probably use a part-time bookkeeper or even do it yourself (if you are numerate) while you get going. For external advisers, there are certain useful steps that just about every new business should take:
1 Contact your local enterprise agency (an organisation linked to various government agencies which helps local business). Many can offer you free advice sessions with financial experts, who can advise you on specific issues such as tax, pensions, payroll, cash flow and getting grants.
2 Talk to a few local accountants if you want to hire one on an ongoing basis. Some offer a free first session to potential clients. The Institute of Chartered Accountants in England and Wales has a section on its website where you can find firms in your area. Ask them hard questions: what their fees will be; what experience they have of your sector; what are the common problems for firms in your field and of your size.