Overview
There are six key types of finance available to companies:
- Personal financial commitment
- Friends, family and associates
- Business internal cash resources
- Grants and other assistance
- Borrowings
- Arms length risk capital
Each type of finance has different objectives and appetite for risk. The level of risk that you are prepared to take on in terms of your personal financial commitment to a business will depend on your attitude to risk as well as your personal circumstances. The level of risk that friends, family and associates will be prepared to take will depend on the same factors, as well as their confidence in you and your business proposition.
The perceived risk of a company to commercial source of finance (including grant awarding bodies, lending institutions and arms length risk capital) will depend on a number of factors, but would include:
- The stage of business development – the closer a business is to start-up, the higher the perceived risk.
- The stage of market development – a business in a new and unproven market would be seen as of higher risk than a business in an established market.
- The track record of the management team – a management team with relevant experience would be perceived as of lower risk than a management team with little relevant experience.
- The industry in which the business operates – some industries have a reputation for higher business failure rates and are thus perceived as a higher risk than average.
