Choose the right finance when starting up

If you're starting a new business, it's likely that you'll have to put up at least some of the money yourself.

It's usually difficult to borrow from a bank or attract other investors unless you're also investing some of your own money.

The easiest way to provide your own financing is if you have savings you can use.

If not, you'll have to think about other possibilities, such as:

• getting a mortgage, or second mortgage
• borrowing privately
• getting an unsecured loan, or borrowing on credit cards
• selling possessions or assets

You should think carefully before borrowing to finance your business and should match the financing to your needs.

For example, using credit cards for long-term expenditure can be cripplingly expensive, while some loans can be inflexible - you could end up paying interest over many years.

Don't over-extend yourself. If you borrow too much, you may not have enough money left to cover your living costs while the business gets going.

You should also try to leave a contingency fund, in case you need extra money to see you through a difficult period.

Advantages

Self-financing your business gives you far more control than other finance options.

Outside investors or lenders could decide to withdraw their support at any time and most will expect a good return on their investment in the form of interest, shares or dividends.

Disadvantages

You must be aware of the risks. If your business fails you could lose your home and other personal possessions.

Knowing how much you have borrowed can put a lot of pressure on you and your family.