Finance for a new business. Mischa and Claire will need money to get them started. There are two basic costs linked with starting a new business, capital costs and start-up working capital.
Finance
Own Savings – many entrepreneurs have savings from previous income or may have inherited money. A major advantage of this source of money is that interest does not have to be paid. Relatives and friends can sometimes be persuaded to lend money, but they may want interest to be paid and will almost certainly want their money back at some stage.
Bank Overdrafts – an overdraft is an agreement with the bank where the customer can ‘overdraw’ money from the current account. Interest rates are higher than those for a loan but charged on the balance each day. They are far lower for an arranged overdraft than for one that has not been previously agreed with the bank.
Bank Loans – this is where money is borrowed for a fixed period and repayments (including interest) are paid monthly. Normally, banks ask for some sort of personal security, such as the owner’s property which they could claim if the business defaulted on the loan. The government has setup a Small Firms Loan Guarantee system to help businesses which cannot provide security. Often, banks will offer new businesses incentives to open an account and provide an adviser.
