A Guide to Financing a New Business in 2021

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Starting a new business is never an easy task, and once you add into the equation all of the extra challenges you will face mid and post-covid, you would be forgiven for thinking this guide might just consist of one word – ‘don’t’.

However, the kind of business world we have currently is the kind where many businesses start better and grow faster than they would in more normal times. For instance, the stores on your local high street might be struggling, yet online retailers are seeing the kind of business growth they might be expecting over 5 or 10 years, not 5 or 10 months.

This guide to financing your new business does not cover every single facet of what you need to do. Instead, it provides a basic two-step plan that will provide a framework that you can tailor to your exact needs and help you get more specialized information rather than wading through pages of more general advice that might not be relevant to you. 

#1 Put together a business plan

You won’t get far by approaching a lender and telling them how amazing your idea is. You’ll need to draw up a detailed business plan detailing forecasts for your first year or so in business (but preferably longer), based on the research you have done before applying.

This plan will include all start-up costs, including what you’ll need to spend on new premises, equipment, and machinery. It will also need to detail any seasonal  variations when cash flow will be much higher or lower than normal (for instance, if your business sells Christmas decorations, fireworks, or BBQs).

Also, you will need to indicate in this plan if your business is cash positive (i.e., customers pay for your product or service before they receive it, like if you sold ice-creams from a cart or CDs on eBay) or if you will be waiting on invoices to be paid by your customers (this can take 3-6 months depending on the terms you agree) so you’ll need to build in.

#2 Find a lender that understands your business

Even with the best plan, if a lender does not understand your business, you will struggle to find the right financing. While you might think that your local bank would be the ideal place to source your small businesses loans, they may have limited knowledge of your industry and might not be able to help you.

Looking at the example above, both the needs and the future of the online retail business are very different to that of the shop on the high street or mall, but to many generic lenders, they would look similar. If you think this might be the case for you, then you need to seek a more bespoke solution.

Certain sections of the market have realized this, and companies have emerged or adapted to put the correct lender (one that understands how your business works, and therefore the potential it offers) with businesses who would only normally meet rejection because all that many generic lenders will see is the risk. 

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