In light of the ongoing threats to business posed by the COVID-19 crisis, we’ve prepared the following guidance to assist sole traders and limited companies. For more information on what measures are available to you now and in the future to protect you and your business, please follow one of the following two links that’s most relevant to you:
Sole traders – How to manage money risks when you’re a sole trader
Ltd companies – Managing and taking money out of your limited company
As well as updating our guidance, we’re also keeping up to date with the latest announcements over on our blog:
You may also want to keep up to date with the government’s own COVID-19 guidance and documentation via the gov.uk website
If you're unable to run your business during this time, you should talk to your accountant and to your bank as soon as possible. They know of, and have early access to, the finance options that will be most suitable, and fastest, to help your particular business.
As a small business, you have numerous funding options available to you. Of course, this is a good thing, but it also makes picking one rather difficult. And choosing the right one(s) at the right time is really important.
To help you out, we’ve pulled together an overview of your options. And you can see what our experts and community feel about them in their accompanying video soundbites too!
Here’s a glance at the options we’ll be covering...
Now let’s take a closer look at your funding and finance options...
1. Your own cash
It’s not in the table above because it really goes without saying that you’ll have to put something in at the outset. Indeed, your own cash is typically the first source of financing for your small business. It may be your only initial option if you’re very much at the idea stage, have a lack of current or projected revenue and/or you’re hesitant to give away any equity (shares bringing ownership rights) just yet.
It could also help you gain finance in the future; more often than not, you’ll need to have invested your own money in your business idea before anyone else will be prepared to do so.
Take a look at our guide to what investors look for, which explores the importance of being ‘backable’ and how you can achieve this.
2. Friends and family
One of the most common means of funding a startup that needs to spend money straight away (e.g. on product development), is to raise money amongst family and friends.
This is generally quite a straightforward process. It’s sometimes structured very informally, but it’s always wise to have documentation that clearly shows how much money has been given, what that entitles the contributor to (if anything), and whether the money comes with expectations or requirements.
If your business is a limited company and the ‘friends and family’ money comes with the expectation that it will be converted into shares, you should take a look at our guide to the different types of shares.
You’ll also need our shareholder agreement template and to update your existing articles of association, which contain the rules for how the shareholders can influence your business and what they’re entitled to.
And don’t forget to look into the highly attractive tax relief that you can offer these early-stage investors. It will make investing in you so much easier, if you can tell interested investors that a substantial chunk of their investment money can be offset against their tax bill! See our guide to EIS and SEIS relief for more information.
Be wary of promoting your business for investment to anyone, at all times. There are strict rules imposed by the UK’s Financial Services Regulator, and they affect even the youngest startups as well as more established businesses. Our guide to promoting your business to investors can tell you more.
3. Bank overdrafts
These are available from most major banks dealing with business customers. They are typically integrated with the banking package that you select. While terms and levels of overdraft will vary from one bank to the next, they don’t tend to vary much.
In most cases, the bank can demand the repayment of the overdraft and you must repay it immediately. Interest is usually charged on the overdrawn amount.
As with all banking arrangements, make sure you know what costs and extra fees you may incur when you set up your business account, as they do work differently from personal bank accounts. You may be charged a fee, for example, to transfer money or operate direct debits.
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