Having selected your intended property and estimated what money you will need, you may now need to borrow – but how much? The time has come to assess your needs carefully.

Sources Of Finance

Your own resources

These will have to be significant. As has been said before, you will be lucky to come across any lender, and certainly not a reputable one, who is prepared to advance money for your business venture unless you are committing funds yourself.

At this stage, unless you have other money available, it will be expected that you have either sold your house, or at least have the sale well under way. If the latter, by the reaction you have received you will know within reason the amount you will end up with. Allow generously for the various fees you will have to pay, such as estate agents, solicitors and removals.

Add to the net amount any savings you may have: redundancy money; life assurance policies which have matured or which you have chosen to cash in; stocks and shares; the proceeds of anything you have decided to sell; any tax rebates due. You will arrive at a figure known as your capital.

Private Loans

Loans from friends or relatives to make up any shortfall between your capital and what you may need to pay out are generally not a good idea. People fall out and then get spiteful. The untimely calling in of an informal loan could put your business in jeopardy.

If you have to borrow from friends or relatives, insist on the terms being drawn up by a solicitor and ensure you are given adequate notice if demands are made for the loan to be repaid. Would you want to lend a friend money without the loan being formalised by a solicitor? See pages 30-2 regarding partnerships.

Banks

One of the large banks is the most-used port of call for people like you starting a business. If you have had a bank account for some time and are entirely happy with the way in which it is run, you may now reap the benefit if you discussed your plans with the manager earlier. It is an excellent thing to get a bank business manager on your side.

Competition between the banks to capture a large slice of the small business market is fierce, and each puts together a very useful and informative business start-up pack.

Unless you are perfectly satisfied with your own bank and are convinced the business manager will cater for all your needs, call in at a number of banks and ask for a business pack. See how you are dealt with, the degree of help offered at this early stage, and the attractions of each bank for you.

The types of loan, the amounts offered, interest rates, arrangement fees and the terms for repayment vary widely. All business accounts attract considerable charges (more of this later) and it may suit your purpose to opt for banks which offer the first one or two year’s banking free – but watch out for conditions you may not be able to meet. See what each bank offers you.

Although with modern technology it is unnecessary to bank locally, it is an advantage to be able to pop in and see your manager. He may well know your type of business, if not the actual one, and may be able to offer you useful advice. Unofficially, of course, very welcome business may be put your way.

Building Societies

Where your own living accommodation forms part of the premises, as is usual in a small hotel, some building societies offer commercial mortgages. When borrowers are few, lenders often extend the scope of their normal lending and offer competitive rates. Make enquiries at a number of societies, see what they have to offer and if their rates, charges and so on compare favourably with those offered by banks.