Raising funds for business

Loopgames

Hi

I have never taken a loan out let alone a business loan. But I have been researching a new product to develop and need £20k to make it a reality.

Now this is the dilemma; there are several ways I could potentially get this money

1. Borrow it from the bank for 5 years. High risk and I've never borrowed any personal loans before let alone a business loan.
2. Use everything I've got from my savings and go for it.
3. Try to procure investment from a business angel - this just takes too long.
4. Raise the money through the business and effectively reinvest it into this new project.

Ideally #4 is the way to go but again takes longer.

I've already booked Toy Fair for next year 2011. The deadline for this product is September this year so will definitely be ready for Toy Fair.

I suppose it's more a choice between taking a loan out versus using all my savings.

I am confused. Don't want to find myself cashless. And if I take the loan out I need a strong cashflow forecast to ensure that I can afford to pay it back.

paulwf

(Mods please consider moving this to the small business forum)

Firstly OP have a look at the Business Link website and call them if you want any advice, their services are free. You may also have a local enterprise agency that can offer one to one help, it depends on your area.

With regards your options we may be able to narrow the choice down:

With option #1 you have to think if a bank will actually back you. You will either need security (usually a house) or go down the Enterprise Finance Guarantee route for starters. Banks won't do anything unless they have security either personally or from the EFG. Next you have to decide if they will think the proposal is viable - at the moment banks won't take any risks. Write out a business plan and have a chat to a business bank manager.

Option #2 is a possibility. However you will presumably need something to cover the cost of living until you can draw a wage as well as the £20K?

Option # 3: angel investors will want a large percentage of the company as their strategy is high risk but high return. This will naturally put some people off if there are alternative options.

Option #4: some variation on this would be good. Do as much market research, prototyping and product evaluation as you can before scaling it up. It's better to risk £2K and pull out than throw £20K at it.

You've left out another option which might actually be the best; licensing or just selling your idea. Most retailers have distribution channels that are pretty sewn up. For example supermarkets are major toy retailers since Woolworths folded, how do you intend to get a supermarket to even have an appointment with you? Chances are somewhere along the line you'll need a major company to market and distribute your idea. Licensing allows you to have an ongoing share of the profits with a fairly small financial outlay.

Loopgames

Thanks for the reply. If it should be moved i'd appreciate that.

I haven't heard of anyone being successful in selling an idea as such. If you mean licensing channels as in selling the concept on then that is part of the plan but at this stage no one will even touch this project until the concept is firmly established in the market. A bit of a catch 22 I know.

I have spoken to my business manager at HSBC who explained to me that I have access to an unsecured business loan of £25k. The funding is there but whether I want to risk that route is a question I am not sure of yet.

I guess for me I'm thinking that I should have firm orders from the retail market before I borrow any money. So I may consider doing both - invest £5k to do the design of the product plus £2k for the website and then gauge orders from retailers at that stage.

paulwf

Random thoughts in no particular order...

Are there agents that can help get your concept from prototype stage to getting picked up by a major company?

Your concept seems a bit "all or nothing" i.e. either it takes off and you can license it or it will flop. Is this the case or is there a middle ground where you can recoup your investment if it just ticks along?

Can you get an advisor to go through your figures with you to see if you can do a limited launch for less money? For example £2K will get you a professional website but the business forum has threads on setting up a website for far less.

Did HSBC say they would give you the money of just that they offer the product? I've had to jump through no end of hoops to get a similar size loan from HSBC and please don't take this the wrong way but my business plan is a lot less risky. My experience is what they say is possible and what is actually offered are two very different things.

Loopgames

You're right - I think the bank manager just gave me a scenerio but told me which interest rate bracket I fell under and then told me how he would go about giving the nod for the loan. I would need to show my lease to him to show that I am a homeowner although it is still an unsecured loan (home not at risk).

So yeah - he just gave me example quotes not actual loan in principle quote.

There is a company that takes the prototype to the big boys but it will still cost about £8000 to get the basic prototype completed.

I have chosen not to go through this route as I would like to get more experience at getting a product to market. Three of my games are already in the Science Museum store but I'm targetting Toys R Us now!!! A bit ambitious but I have to try.