Businesses at some point will possibly need finance for any number of reasons. Before embarking on sourcing the funds the business owners should consider the options. The cardinal rule is to match the funding requirement to funding source. If you need to raise finance for a capital project you’d probably not use your credit card!
Consider the questions you’ll need to ask yourself.
1) How much finance is required?
2) Work out what you can afford, there are loan calculators on line. Decide on an interest rates (be realistic about this) and loan periods. Play around with some scenarios you’ll be able to work out some indicative repayment amounts that fit your budget and cash flow. If the numbers don’t stack up, think laterally.
3) When are the funds needed? Generally sourcing finance takes longer than expected don’t be surprised if the first lender doesn’t have the appetite for your requirements. There is always another lender out there.
Before approaching a funder consider what affect the cash injection will have on your business.
1) Will this affect your gearing level?
2) What security can be provided against the finance?
3) Are you willing to give up some of your ownership to potential investors, if so how much are you prepared to give away?
4) The tax effect of the different decisions, what can you deduct as an expense against profits?
Niall O'Driscoll is the Founder and Principal of OD Accountants a leading accountancy firm based in Bethnal Green in East London. Niall is a Fellow of the Chartered Institute of Management Accountants, and a patron member of the Irish International Business Network. Follow Niall on Twitter @NiallO_Driscoll