You're starting a new business in a time of perceived economic uncertainty. Credit crunching continues, money isn't falling off trees and there is talk of recession. Yet the product or service you plan to offer is a surefire business winner; all it requires is a financial leg-up, a funding kick-start. Where does this money come from?

Assuming you haven't won the lottery, collected on a substantial inheritance or amassed personal savings to a significant degree (and which you are willing to risk), you will be looking for a loan. The type and extent of the loan will be determined by the nature and financial requirements of your venture start-up (you have already, of course, prepared a detailed business plan with projected earnings), the availability of funds and your credit record.

Financial options

Can you turn to family and friends for financial help? Would a private investor be interested in injecting capital or is a bank loan/overdraft facility all that's required? It might be that remortgaging or a secured loan could provide the answer, or perhaps just a small personal loan would suffice. Is there a pension fund you can raid?

A traditional excuse of the self-employed for not financing their retirement has always been 'my business will be my pension'. From a different perspective, could your pension be your business? Rules allow access to most pension funds after the age of 50; that 25% tax-free cash lump sum could well underwrite your start-up.

You need impartial financial advice to successfully navigate the loan maze and get the best possible borrowing scheme. Don't be tempted to fund your new business solely on a succession of credit cards; the interest you will pay is likely to stifle business income within a very short time.

Last year a survey carried out by NatWest indicated that 4 million UK employees planned to quit their jobs within a year to go it alone, many no doubt spurred on by the glamour and excitement of entrepreneurship as depicted on TV. Note, though, that 60% of small business owners questioned in Bank of Scotland's December confidence index believed economic conditions would worsen in 2008.

At least there's now the good news of the Chancellor's climbdown on his capital gains tax proposals. What was to be a new flat rate of 18%, effective 1st April, will be reduced to 10% on the first £1 million of gains made between the buying and selling of business assets.

The high street clearing banks are the major providers of finance to businesses, in the form of overdraft facilities and loans. You can shop around to find the best deal (bearing in mind that lending would seem, currently, not so popular a banking pastime as it used to be!), but your existing bank could be the best option. This is because you have a track record (hopefully) of sensible financial behaviour.

Quality advice and guidance should take precedence over service gimmicks or free business banking offers. Remember that banks compete (or they did!) for start-up business accounts in much the same way as they do for student accounts, expecting a future of fatter margins as your business expands and you require greater use of their other products and services.

If a personal loan is your preferred solution check out all interest rates and conditions in the light of your up-to-date credit rating. You will not get a competitive loan interest rate if your credit is impaired and you risk leaving a 'muddy' footprint on your rating as you move from one (unsuccessful) loan application to the next.

Prepared for a secured home?

Bigger borrowing is possible with a secured loan and the loan period can range from three to 25 years (a personal loan is typically for around five years). However the loan is secured from the lender's viewpoint, not your's; your home is the security and could be repossessed if you default on repayment.

To get a secured loan you need to be a homeowner or possess some other acceptable form of security such as a priceless art collection. The level of equity you hold in the property, the lender's view of your ability to repay and the existence of any adverse credit scores will impact on the borrowing terms and conditions and the level of interest paid.

If you own your home (or are paying your way to owning it) why not remortgage to raise the necessary cash for your business venture? The interest rate will in most cases be more attractive than that for a secured or personal loan, but because of a mortgage's longer loan period you will end up paying a much higher amount in total interest. It is also important to remember that your home may be repossessed if you do not keep up repayments on your mortgage.

Are you prepared to concede equity in your business venture? If so, private investors could be interested. Check out the British Business Angels Association for possible sources of funding, advice and relevant marketing skills you could utilise. Also, search the directory at Business Link to find if you qualify for any Government grants or subsidies.

 

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