Choosing a source of capital

When you choose a source of capital, you compare the finance options available to an enterprise rather than taking the first one offered. The right source depends on the enterprise’s stage, how much it needs and what it can afford to give up.

Point to compare	Question to ask	Why it matters
Amount available	Is there enough for what the enterprise needs at this stage?	A source that is too small leaves a gap; borrowing more than needed can add unnecessary cost.
Speed	How quickly can the money be in the business?	Delays can mean missed stock, equipment or opening dates.
Cost	What interest, fees or share of profits must be paid?	A cheap-looking source can become expensive once charges or profit shares are added.
Repayment terms	Must it be repaid, when, and in what instalments? Is it a gift or a loan?	Repayments use up cash that could pay for stock, staff or marketing.
Loss of control	Does the provider get a say in decisions?	A business angel may expect input and a share of the business, while a lender usually does not run it.
Risk	What happens if things go wrong, and what is at stake?	Security, personal savings or relationships may be lost.

Comparing sources means naming one and weighing it against another using these points for that enterprise.

For example, a mobile bike repair service needs £5,000 for a van, tools and insurance, and has £2,000 in savings. A bank loan of £3,000 could arrive in time for spring, when repairs are busiest, but interest makes it cost more and the van may be used as security. Crowdfunding might raise a larger sum, but it takes time to prepare and depends on reaching a target. The owner might choose the bank loan because it could arrive in time and repayments can be planned from repair income, even though it is not the cheapest option. A different enterprise could choose differently: savings are quick and free but limited, while a loan gives a larger sum but adds interest and security.

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