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Bank charges and loans, business growth & Development

Funding your small business – keeping the cash flowing

Funding your small business - keeping the cash flowing

The recession brought with it a multitude of problems for small businesses, the most common being lack of financing for small firms.

We could lay blame with the banks (many do) or the present government but regardless of who’s fault it is finding funds is the duty of any small business owner.

Let’s take a look at what methods a small business owner could use to obtain financing:

Cash-flow forecasting for the year.

It is important for any business, big or small, to forecast over the course of the year. Ideally forecasts should be set for each individual month and needs to cover:

What money is coming in.

• Source of finance – i.e. loans, grants or income.
• How much money is being spent.
• What the money is being spent on.

It is also important to bear-in-mind that many business owners tend to overestimate their company’s revenue and underestimate expenditure. Effects of late payers and seasonal influences should also be taken into account. For example, if you are a toy retailer then you may expect to see an increase in the months leading up to Christmas.

Once you have your cashflow forecast you should then consider where you are going to obtain the much needed money from:

1. Savings.

This is thought to be the safest and easiest way to fund a small business. Should things go wrong you have only lost your money, and won’t be burdened by debt or have sacrificed personal assets as a result.

2. Work on your business part-time.

If possible starting your own business whilst working for someone else is a good way of financing your company. This is a very low risk way to prove your business idea works. Initially it may prove to be difficult to grow your company beyond a certain point, however, once your business is established and proven to be a profitable venture then there is scope to run your business on a full-time basis.

3. Get a small business grant.

There are a few UK organisations that will give you a lump sum of cash that you will not need to pay back. However, your eligibility may depend on a variety of factors including: you, where your business is based and what it does. More details about business grants can be found at the Business Link and other government websites. Please see the bottom of this article for a more comprehensive list.

4. Borrow money.

There are a large number of unsecured loans available via banks and other financial institutions. Unsecured loans allow you to pay fixed-repayments over a set period of time. They are loans that are not secured against your personal assets but are normally assessed based solely on the borrower’s credit rating, however, they can also be lent based on the good-will of the borrower.

Apart from loans there are other sources of lending that can be accessed by small businesses. These include:

• Credit Cards
• Overdraft facilities
• Commercial secured loans (usually secured against your house or other property as equity).

5. Borrow money from family and friends.

Not usually recommended but should this prove to be the best and easiest way to secure funding then you should agree terms and conditions with them first – including signing a legally binding agreement to ensure everything is sorted out in the event that any problems occur.

6. Equity.

This is essentially a way of obtaining investment by selling a portion of your business. However, this can prove to be very difficult. Ideally you should have a solid business idea and plan as well as good opportunity for fast, long-term growth. It’s worth bearing in mind that anyone investing in a business expects to see a good return on investment and they may want to be involved in strategic decision making, as it’s their money you are working with.

7. Sell your debt.

Selling your debt to another company is known in the industry as “factoring.” This is commonly used by small businesses that offer credit terms on their invoices but don’t want to wait 30, 60 or 90 days for payment. The factoring company will pay you immediately, collecting the money from your client when it’s due to be paid. The only real down-side to factoring is having to pay the company a percentage of the fee but it may help to prevent having to borrow a lump sum to keep your cash-flow healthy.

Other useful links:


The Business Link

which bank is the right one for my business?

Growing your business: take a larger bite of the marketplace


Photo by Salvatore Vuono



16 thoughts on “Funding your small business – keeping the cash flowing

  1. interesting article, glad can visit and read the article here. I hope you also want to visit my website. thanks

    Posted by top-insurance | February 20, 2010, 1:51 pm
  2. heeeeeeeeei

    This is thought to be the safest and easiest way to fund a small businesses…..



    Posted by hedden | April 17, 2010, 10:48 am


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