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Financing Start-up Costs

Financing Start-up Costs. Three main sources Capital Commercial loans Government assistance. Capital. The money invested in the business by the owner(s) Is likely to be a substantial amount Depends on the legal form of the business – Sole trader / partnership depends on personal wealth

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Financing Start-up Costs

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  1. Financing Start-up Costs Three main sources • Capital • Commercial loans • Government assistance

  2. Capital • The money invested in the business by the owner(s) • Is likely to be a substantial amount • Depends on the legal form of the business – • Sole trader / partnership depends on personal wealth • More money available for limited company as can make use of shareholders

  3. Capital • A public limited company can raise money through a stock market ‘float’ • A limited company can raise capital through a specialist venture capital company or through business angels

  4. Venture Capital company • Will invest in a limited company (public or private) through the purchase of shares • Will have conditions attached – such as a place on the board

  5. Business Angel • A picturesque term for a wealthy individual who invests in start-up and growth companies • In return they will accept shares or actively participate in the company • “Dragon’s Den”

  6. Commercial Loans • Start-up costs are often financed by commercial companies such as banks • Usually the length of the loan is set to match the expected life of the item or asset to be financed • An asset is an item owned by the business

  7. Common Loan Types • Bank business loan – • A fixed medium-term loan, typically 3-10 years • Covers the purchase of capital items such as machinery or equipment • Interest charge linked to Base Rate (centrally-set) • Repayments by instalments

  8. Common Loan Types • Commercial mortgage • Long-term borrowing to finance property purchase • Typically up to 80% value of property • Repayable over a period of up to 25 years • Premises are used as security

  9. Common Loan Types • Venture capital loans • Venture capital companies also invest money in the form of loans • May expect an element of control over the company • Possibly including having a director on the board • Will look for good sales and profit potential

  10. Private Loans • Possible to borrow from a private individual, e.g. family • Normally only occurs with small businesses – sole traders

  11. Government Assistance • The UK government, through the BERR (Department for Business, Enterprise and Regulatory Reform) provides grants and loans to new and expanding businesses • This Selective Finance for Investment in England (SFIE) is aimed at businesses operating in Assisted Areas • Information is available through Business Link offices and the BERR website

  12. Government Assistance • Smallfirms loan guarantee – government guarantee of commercial borrowing • Enterprise Capital Funds – provides share capital finance for small growth-orientated businesses • The Small Business Research Initiative • Local Business Partnerships • Business Bridge • Young Enterprise

  13. Other • Chambers of Commerce • Trade Associations • Prince’s Trust • Shell Livewire • Federation of Small Businesses • The Business Club

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