Advantages and disadvantages of using a debt collection agency

Ensure customers pay you on time

In this guide:

When does a payment become late?

The point at which a payment becomes late depends on whether you have agreed a credit period with the customer.
You can agree any credit period you want with customers but you should agree the payment period before the transaction takes place. Don't assume your usual terms apply as the payment period should be part of your negotiation on pricing and is the period agreed between parties. This agreement can be verbal but it should preferably be in writing.

Industry standards for payment tend to be net monthly - that is, payment at the end of the first full month following receipt of the invoice. These terms are standard as they allow a business to actively plan payments. However, you should negotiate your own terms and price your services accordingly.

Where there is neither an agreement in place nor custom and practice in operation, the law sets a default period of 30 days.

This period starts from whichever of the following is later:

the date on which the goods are delivered or the service is performed

the date on which the customer receives notice of the amount of the debt

Purchasers cannot contract out of late payment legislation ie they cannot deny the supplier their right to, for example, charge statutory interest once a payment is overdue.

Prompt Payment Code

The Prompt Payment Code (PPC) is a joint initiative of the Chartered Institute of Credit Management (CICM) and the Department for Business and Trade (DBT) seeking to identify payment exemplars across both the private and public sectors. The Code is administered by the Office of the Small Business Commissioner (SBC).

Businesses that sign up to the code commit to paying their suppliers on time and to providing clear guidance on payment procedures. Signatories are only allowed to join the Code if they are supported by supplier references.

Find out more about the Prompt Payment Code, what signatory organisations challenge themselves to do and how businesses can sign up.
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Tips to ensure customers pay you on time

Ways to actively reduce or eliminate bad debt among your customers.
To reduce the chances of late or non-payment, you could:

Make credit terms and conditions clear.

State an intention to impose your rights under the late payment legislation in all contracts and invoices, eg "We will exercise our statutory right to claim interest and compensation for debt recovery costs under the late payment legislation if we are not paid according to agreed credit terms."

Don't supply any goods or services until you are satisfied with the credit checks.

Quickly issue invoices that are clear and accurate. Include only useful information eg order number, payment terms, due date, delivery date and method, unit cost and total payable etc. Email invoices or use first class post. You should reference the late payment legislation and the additional costs of paying beyond the agreed date.

Use a computerised credit management system, which will help you keep track of customers' accounts and generate reminders when payments are late.

Have a collection strategy eg telephone ahead of due dates to check that payment is in progress, or send reminder letters. Send emails/faxes if your telephone calls are being diverted or letters being ignored. If necessary, organise visits from sales staff and/or direct payment requests to more senior staff than normal.

Set monthly targets - put together a payment timetable and ensure that you have staff who can devote their time to collection.

Use an electronic payment tool.

Ensure your staff are properly trained in credit management and debt recovery.

You could also take out:

credit insurance - to cover you if you have a bad debt due to a customer going into insolvency

legal expenses insurance - this covers the costs of recovering debts through the courts

To improve cashflow, you could also use a debt factoring service. This is where you effectively 'sell' your invoices to another company - see factoring and invoice discounting.
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When to charge interest on late payments

You have a statutory right to charge interest on any money owed to your business.
You have a statutory right to claim interest on late payments, as well as a contractual right to claim interest if you have specified this in your terms and conditions.

Should I charge interest on a late payment?

You can charge interest on all late payments. However, even if you indicate in your terms and conditions that you will charge interest on all late payments, it is up to you whether you actually do so or not.

You should address each debt on a case-by-case basis and:

consider the relationship with the customer

get the opinion of customer-facing staff

assess your credit management system

What rate of interest should I use?

Rates for calculating interest are called reference rates and are fixed for six-month periods. The Bank of England base rate on 31 December is used as the reference rate for debts becoming overdue between 1 January and 30 June of the following year. The rate in force on 30 June is used from 1 July to 31 December.

You can calculate the interest payable on overdue bills by taking the relevant reference rate and adding 8%.

Alternatively, you can set a contractual rate that may be higher or lower than the statutory rate. If you set a contractual rate, the statutory rate no longer applies.

Interest should be charged on the outstanding gross amount inclusive of VAT. No VAT is chargeable on the interest itself.

Charging interest

If you don't already charge interest, you may need to:

adapt your credit management and billing systems

amend invoices and terms and conditions so that they state you reserve the right to charge interest

notify customers of your plans and check that they understand the new terms and conditions

contact habitual late payers to discuss how they'll be affected

Make sure invoices include an agreed payment date so customers know when interest will start being charged - let customers know if interest starts to accumulate.

Before charging interest, you could issue a letter stating that the payment is late and if it is not paid within, say, seven days, interest will be charged.
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Bank of England base rate information

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Claiming debt recovery costs on debts and payments

Your legal right to claim debt recovery costs from customers who pay late.
As well as charging interest under late payment legislation you can also claim costs for the recovery of late payments. There is an automatic and fixed compensation charge shown below, but you can also charge any reasonable additional costs of recovery where they exceed the basic compensation rate.

Amount of the debt Debt recovery cost you can charge

Up to £999.99 £40

£1,000 - £9,999.99 £70

£10,000 or more £100

However, before applying the charge, you should:

consider your relationship with the customer

get the opinion of customer-facing staff

assess your credit management system

find out the general industry practice

If you decide to apply the charge, you should notify the customer in writing. You should also send them a new invoice with the charge itemised as an additional amount and the outstanding total debt adjusted accordingly.

Purchasers cannot contract out of late payment legislation ie they cannot deny the supplier their right to, for example, charge statutory interest.
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Taking non-court action to collect debts

There are a number of ways of collecting a debt without having to go to court.
Court action should be seen as a last resort. Before you take court action, you should consider the alternative methods of recovering debt outlined below.

While you consider the options, you should continue trying to recover the debt using the usual methods eg telephoning the debtor to remind them that the payment is now overdue.

Involvement of one of the following may also assist:

An accountant - some offer debt collection services as well as advice on credit control and debt collection procedures.

A solicitor - some solicitors specialise in debt collection. They can issue powerful letters in a short space of time. Agree a fee for this service in advance.

You could also use a debt collection agency - see advantages and disadvantages of using a debt collection agency.

A further alternative is for you, your debt collection agency or solicitor to issue a statutory demand, promising an application to court for the formal winding up of the customer's business if payment is not made within 21 days.

Finally, you could consider:

negotiation

mediation

conciliation

arbitration

For more information see recover debt through court.
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Advantages and disadvantages of using a debt collection agency

Using a debt collection agency could help your business but there are also some possible disadvantages to consider.
Before taking court action to collect debts, you could consider instructing a debt collection agency.

Advantages of using a debt collection agency

Debt collection agencies have the time, expertise and resources required.

Some agencies now offer a no collection no fee service.

Debt collection can be a fast method of recovering debts so could save you time.

If the debt collection agency is polite and professional, you may keep your customer - this is unlikely to be the case if you take legal action.

The agency can instruct solicitors on your behalf if your customer still refuses to pay.

Disadvantages of using a debt collection agency

Using a debt collection agency can be costly - the commission on the money recovered is typically 8 to 10 per cent for commercial debts.

You may lose your customer if the agency has poor communication skills.

If the agency takes a heavy-handed approach, your reputation may be damaged.

Your business may not be a priority - you may be one of many businesses the agency works on behalf of.

The agency may not use legally trained employees.

You should also check that your agency is registered with the Credit Services Association (CSA).
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Recover debt through Court

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Taking court action to collect debts

Taking court action to collect debts.

Taking legal action to recover your money should be a last resort. Therefore, consider all other alternatives before going to court.

If court action still seems the best solution, consider whether making a claim is cost-effective. It might be cheaper to write off small sums. If a customer is likely to place large orders in future, it may be better to let things lie if only a relatively minor amount is in dispute.

If you decide to take court action, make sure you have resolved any disputes over the goods or services you have provided. If you don't do this, the debt will be difficult to recover. You also need to make sure that customers have the means to settle. If they are bankrupt or in liquidation, your debt is probably irrecoverable.

Debts of up to £3,000

Debts of up to £3,000 are dealt with by the small claims track at your local county court. This offers a quick and inexpensive way of making claims for unpaid debts, as you don't have to employ a solicitor. Find your local county court with the Northern Ireland Court Service.

Debts over £3,000

Claims from £3,000 to £25,000 must be issued in a county court, while claims of more than £25,000 can be issued in the High Court. It's advisable to get legal advice about this - see choose a solicitor for your business.

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Amount of the debt	Debt recovery cost you can charge
Up to £999.99	£40
£1,000 - £9,999.99	£70
£10,000 or more	£100

Read more about Advantages and disadvantages of using a debt collection agency

Advantages of having a business bank account

Choose and manage a business bank account

In this guide:

Advantages of having a business bank account

The advantages of setting up a business bank account for your business.
If you operate your business as a limited company or partnership, you are required to set up a business bank account to ensure you report your taxes correctly.

If you are operating as a sole trader, there is no legal requirement to have a business bank account. However, you may find it easier to keep your business and personal finances separate.

Setting up a business bank account has several advantages:

Your personal bank account terms and conditions - Some banks won't allow you to use your personal bank account for business transactions, this will be included in the terms of your bank account.

Tax reporting to HMRC - You are required to file a tax return every year and to do this you'll need to keep records of your business's sales and expenses. If you're using a personal bank account, your business transactions will be mixed up with your personal transactions. This can make the process complicated - having a dedicated business account makes it easier to track business cashflow and complete your tax return.

Professionalism - Providing customers and suppliers with a dedicated business bank account can make your business look more professional than using personal bank details.

Business account benefits - Many banks will offer introductory offers on business accounts, meaning that you can get free banking for a certain timeframe. Some banks will also provide free or low cost electronic transactions, branch based advisers and competitive interest rates on business profits.

UK Finance provide further guidance on opening a business bank account.
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Opening a business bank account

What financial, personal and business information you'll need to give to a bank to set up a new business account.
Once you have decided which bank to use and which type of account you need, you may need to set up a meeting with the bank to open the account. Alternatively the bank may allow you to open a business bank account online. In each case, the bank will require certain information from you to open a business account, including:

details of your business and business activities

where the start-up finance for the business has come from - eg from you or other investors

a business plan - see write a business plan: step-by-step and tailor your business plan to secure funding

information on your credit history

bank statements for the business if you already have a business account

if you are a limited company - a certificate of incorporation

You will also have to provide the following information and documents:

a driving licence, passport or other acceptable form of ID

proof of address, such as a recent utility bill for you and for any other person involved in the management of the business - if you are a limited company, this information will have to be provided for any directors and company secretaries so that the bank can check your identity as required under money laundering laws

an account opening mandate - the bank will give you this

a list of the persons who can sign on the bank account and a sample of their signature - the bank will ask you to specify in what combination people will sign on the account eg cheques may require two signatures
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Choosing a business bank account

The different types of accounts and key factors to consider when choosing a business bank account.
The type of account/s you choose will depend on your business' needs.

Depending on your business, you may require:

a business current account for daily transactions, payments and receipts - eg one that pays interest on credit balances (though not all banks offer this)

an instant access deposit account for cash sums not needed for daily operations but can be accessed as required

a term deposit account for funds not needed immediately or at short notice

a foreign currency account if you trade overseas and if you receive and make payments in foreign currency

a loan account for any loans you take out

a merchant account to accept and process debit and credit card transactions - see using payment cards for your business and accepting online payments.

Compare accounts

Before choosing a business account, you should compare the different services and costs. For example:

facilities - eg automatic money transfers, debit and credit cards or telephone or internet banking

interest rates - particularly if you're usually in credit

overdraft charges - particularly if you're often overdrawn

monthly fees

additional account charges - eg for statements, cheques and cash payments

additional services - eg small-business advice

UK Finance provides guidance on opening a business current account .

Improving your current deal

You should review your bank accounts at least once a year and compare them with others available.

If you compare your current bank's service with others on the market you will know how competitive your deal is, or if there are better options. But you don't have to switch banks to improve your deal, you could instead see if you can agree better terms with your existing bank. If you have a history as a good customer, your bank may be willing to negotiate with you.

Using more than one bank

You could also consider using different banks to fulfil different financial requirements. This allows you to pick and choose the most beneficial parts of various deals.

However, it may also be more complicated and time consuming to keep track of your financial affairs and to build a relationship with each bank.
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Managing a business bank account

How to build a good relationship with your bank and manage your bank account carefully.
As your business grows and changes, you may find that the terms and conditions attached to your business bank account are no longer best for your business. It is important to regularly review the situation so that if this is the case, you can switch to a different account or negotiate to change the terms and conditions of your current account.

It is important to build up a good relationship with your bank. You should always try to keep to the terms and conditions attached to each of your business accounts.

Your relationship with your bank will also be improved if they understand your business. You can help them to improve their understanding by:

talking to the person managing your account on a regular basis

sending your accounts to the bank every year, if requested

providing the bank with updated copies of your business plan when you need new loans or increased overdraft facilities - see tailor your business plan to secure funding

letting your bank know if you plan any unusual transactions - eg significant capital expenditure

If you are unhappy with any the service you have received from your bank, in the first instance complain to your bank. If you remain unhappy, the Financial Ombudsman can provide details about complaining or resolving a dispute with your bank.

Beyond maintaining a good relationship with your bank, you can also manage your bank account more easily by:

ensuring only appropriate persons are authorised to make payments from the bank account

keeping records of all transactions in the bank account

keeping and checking through your bank statements

using your bank statements to check the financial position of the business

cross-checking your statements with your business records to ensure that all transactions are correct

Online banking can make it quick and easy to check balances and payments - see online banking for businesses.
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Advantages and disadvantages of switching business bank accounts

The benefits and issues involved around changing your business bank and how to switch accounts.
Changing the bank your business uses can be time-consuming and disruptive.

However, the Financial Conduct Authority (FCA) Banking Conduct of Business Sourcebook (BCOBS) can help make the transfer of bank accounts quicker and simpler for customers.

If you are changing banks, you can ensure the process runs smoothly by:

contacting your new bank and obtaining application forms in advance - check the terms and conditions of your new account carefully and discuss any concerns before returning the forms

having business information ready for your new bank

completing the mandate from your new bank to allow them to deal with your old bank on your behalf and request details of regular payments

checking whether the bank will notify those who make payments to you, or whether you need to - the new bank will arrange for these payments to be switched

monitoring both accounts carefully to check for irregularities - eg payments being made twice

if possible, keeping your old account open until you're sure the new bank can deliver the required service

The new bank will notify you once they have completed their responsibilities for the transfer.

Advantages of switching business bank accounts

There are several advantages to switching business bank accounts:

a new account could offer more attractive interest rates or lower charges

a new bank might understand your requirements better than your current bank

many bank accounts come with introductory offers eg free banking for an initial period

your current bank may not offer 24-hour telephone or internet banking services

Disadvantages of switching business bank accounts

However, switching bank accounts can also have a number of disadvantages:

if you have security or your accounts are complex, it can still take time and there's no guarantee of avoiding problems altogether

using one bank for several years can demonstrate financial stability, which can be important for applying for a loan or other sources of finance

you will lose the benefits of the relationship you have with your current bank

you may need to assess the possible impact of switching on other arrangements you might have with the bank eg loans or credit cards
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Online banking for businesses

How online banking can reduce costs and improve control of your finances, and how you can switch to online banking.
All major banks offer online banking, and most businesses can benefit from using it. Online banking allows you to:

check your balances and view statements online

move money between accounts

make payments to suppliers

set up regular payments such as salaries

order chequebooks and statements

download account information to analyse on your computer

Online banking allows you to manage your business bank account more efficiently, but it can also be very cost effective. Charges are often lower than for ordinary accounts and accounts may offer higher interest rates. Banks usually offer online banking services at no extra cost.

Larger businesses may also be offered 'PC banking' - this requires installing special banking software on your computer to manage your account. It allows you to directly link your accounting systems to your bank and can offer a more effective solution if you have a large volume of banking transactions.

Take Five provides important information on safe online banking.

Switching to online banking

Before you go ahead and switch to online banking for your business, make sure you:

identify your objectives eg you might simply want to reduce costs, or online banking may be part of an integrated IT system for handling accounting and payments

check what services your bank offers and whether they meet your needs

investigate what services other banks offer

find out about transaction charges, interest rates and any standing charges

estimate how your banking costs will change with online banking

talk to your suppliers and customers about the kind of electronic payment options they would like

assess whether you would need any additional equipment and whether any specialist set-up is required

estimate the costs and timescales of switching

identify which employees will be affected by the change and organise suitable training in the new system or procedures

ensure that you have proper security ie anti-virus software, firewalls and password protection - and ensure you include security measures as part of your staff training

plan the introduction and testing of online banking
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Business bank account charges

Take care in controlling your bank charges and find out when they will be taken from the account.
Banks will provide you with information about their charges, but make sure you understand this information and are aware of the terms and conditions. Brochures and leaflets will highlight the standard charges and you will be advised of some of the non-standard fees before the service is provided.

Checking bank charges

Bank charges are usually taken monthly or quarterly. A statement detailing a breakdown of all fees is sent to the customer before the fees are taken. You should check this statement regularly to ensure that no other fees are being imposed.

If you do not keep to the terms and conditions of your account, the charges can be high. For example, banks may charge a referral fee if your account goes overdrawn without permission and if you accept a cheque that is returned unpaid by the debtor's bank, your bank could charge you an administration cost and you will not get the money due to you.

Keep bank charges to a minimum

There are ways to keep your bank charges as low as possible. These may include:

negotiate for better interest rates and lower charges

automate as many transactions as you can by using standing orders, direct debits and electronic payments

use your bank's online services if any are available

avoid unauthorised overdrafts

minimise the amount of cash you pay into your account and the cheques you write out

open a foreign currency account to make and receive foreign currency payments - you will avoid making exchange fees on each transaction and it allows you to hedge against foreign currency exchange rate fluctuations, however, you should check set up and transaction charges carefully

find out what other banks would charge for the same services
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Read more about Advantages of having a business bank account

Bankruptcy for company directors

Make yourself bankrupt

In this guide:

Get advice about bankruptcy

Who to contact for advice on bankruptcy
Anyone with personal debts can become bankrupt, including individuals, sole traders and individual members of a partnership.

Bankruptcy is a serious matter, so before you decide to apply for your own bankruptcy, you should seek independent legal or financial advice about bankruptcy and the available alternatives. You must do this in good time, as professional advisers cannot help you if matters have already gone too far.

It is a good idea to take financial and legal advice as soon as you or your business start getting into financial trouble - for example if:

you can't cover your debts

you can't pay staff wages

there is an acute lack of working capital

Your accountant, who may already be familiar with your business, may be able to advise you.

Free debt advice

There are a number of organisations that offer free debt advice in Northern Ireland. These include:

Advice NI Business Debt Service

StepChange Debt Charity

PayPlan
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Alternatives to bankruptcy

Other options to consider before making yourself bankrupt.
There are various alternatives to bankruptcy, including:

Informal arrangement - writing to all your creditors to see if you can reach a compromise.

Individual Voluntary Arrangement (IVA) - a legally binding way to reduce the amount that you pay back, stop any further interest charges and reduce your monthly repayments. You would need to contact an insolvency practitioner who will advise you and consider whether your proposal is viable. Read more on IVAs.

Administration order - if one or more of your creditors has obtained a judgment against you, the Enforcement of Judgements Office (EJO) may make an administration order. Under this order you will make regular payments to the EJO towards the total sum you owe your creditors. Your total debts must not be more than £5,000 and you will need enough regular income to make weekly or monthly repayments. Read more on administration orders.

Debt Relief Order (DRO) - if you are unable to pay your debts, owe less than £30,000, have assets worth less than £2,000 and have less than £75 per month disposable income, after paying normal living expenses, you may be able to apply for a DRO. Read more about DROs.
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How to petition for your own bankruptcy

Understanding the process involved in making yourself bankrupt, and how and where to get the right forms.
To apply to make yourself bankrupt, you will first have to complete two Insolvency Service forms:

The petition - form 6.30. This is your request to the High Court for you to be made bankrupt and includes the reasons for your request.

The statement of affairs - form 6.31. This shows all your assets, debts, the names and addresses of the creditors and the amount you owe each one. It also contains a statement of truth that you will need to sign and date before you are made bankrupt.

You will also have to pay a deposit of £525 towards the costs of administering your bankruptcy which is paid to the Insolvency Service, a branch within the Department for the Economy (DfE). The payment can be made in cash, cheque or postal order. Alternatively, you can also pay online.

Where to get the bankruptcy forms

The forms are free and you can get them from the High Court. Court staff can advise you on the High Court procedure and give you the forms you need, but they cannot give you legal advice. You can also find bankruptcy forms online with the Insolvency Service.

Once you have completed the forms you will need to print them and take them to the High Court, along with a receipt of your deposit paid to the Insolvency Service.
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Bankruptcy for company directors

What to do if you are the director of a company and need to declare bankruptcy.

If you are the sole director of a limited company and declare bankruptcy, you must cease acting as a director. Any shares you own in a company will be passed to the Trustee of your estate. The Trustee will seek to realise any value there is in these shares by selling them or winding up the company.

The Official Receiver (OR) (who is both a civil servant in The Insolvency Service and an officer of the High Court) will be appointed to deal with your bankruptcy. The OR will act as trustee of your estate unless an insolvency practitioner is appointed.

If you are not a shareholder in the company and the company wishes to continue, you can appoint another director. This appointment must happen before bankruptcy proceedings begin. Be aware that managing or promoting your company is prohibited until your bankruptcy is discharged. If you fail to appoint another director, or a third party shareholder fails to do so, the Trustee may appoint someone or may wind the company up.

If the company has multiple directors, you should inform the other directors immediately and resign your position with Companies House. Find further information on how to tell Companies House about changes to your limited company.

Any personally owned business assets will be claimed by the trustee unless they are exempt - see how bankruptcy affects your assets and bank account.

Bankruptcy for partnerships

If you are, or were, running a business in partnership (even if there is no formal partnership agreement) you can still apply for your own bankruptcy - see how to petition for your own bankruptcy. Unless there is a clause in the partnership agreement to the contrary, then the partnership will cease on your bankruptcy.

Your interest in the partnership will vest in the Trustee of your estate and they will seek to realise this. Even if there's a clause that means the partnership is not automatically terminated, then the Trustee will still be able to realise your share of the partnership assets.

If all the partners want to be made bankrupt, then they should apply for a joint bankruptcy petition under the Insolvent Partnerships Order (Northern Ireland) 1995. Form 16 is required and is available from the Bankruptcy and Companies Office at the High Court. Find contact details for the High Court.

The cost is the same as an individual presenting their own bankruptcy petition - see the costs involved in making yourself bankrupt.

When the bankruptcy orders are made this dissolves the partnership. All debts of the partnership, not covered by partnership assets, are included in each of the bankruptcies, under the principle of joint and several liability.

The Department for the Economy (DfE) provides further advice on how to wind-up a partnership.

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Which court you should use for bankruptcy

Which courts deal with bankruptcy matters and how to find the right one for you.

Bankruptcy petitions are presented in the Northern Ireland High Court, Royal Courts of Justice, Chichester Street, Belfast.
The High Court will need the completed forms, two copies of each along with a receipt of your deposit paid to the Insolvency Service before it can accept your petition for bankruptcy.
Once you have completed both forms, signed and dated the bottom of every page and have your fees ready, you can go to the High Court and ask for your petition to be dealt with. To find out about fees, see the costs involved in making yourself bankrupt.

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Costs involved in making yourself bankrupt

Information on the fees you may have to pay to present your bankruptcy petition.
There are three fees that you will have to pay when you take your petition and statement of affairs to the High Court:

The deposit of £525 towards the costs of administering your bankruptcy and is paid to the Department for the Economy (DfE). The deposit is payable in all cases and payment may be made in cash or postal orders, or by a cheque from a building society, bank or solicitor. Cheques should be made payable to the "Official Receiver". You can also pay online.

The High Court fee of £151. This fee may be paid in cash or by cheque or postal order made payable to "Supreme Court Fees Account". In some circumstances the High Court may waive this fee; for example, if you are on Income Support. If you are not sure whether you qualify for a reduction in the fee or whether you are exempt from paying the fee, High Court staff will be able to advise you.

The fee payable to a solicitor before whom you swear the contents of your statement of affairs. You should expect to pay around £7 for this service.

If you were in business as a partnership, each partner will have to pay separate fees, unless all the partners present a joint bankruptcy petition under the Insolvent Partnerships Order (Northern Ireland) Order 1995. The Department for the Economy (DfE) provide insolvency and bankruptcy forms.

The cost is the same as for an individual presenting their own bankruptcy petition. When the bankruptcy orders are made, this dissolves the partnership. All debts of the partnership as well as the debts of the individual partners are included in the bankruptcies. See further DfE guidance on winding up your own partnership.

If you are a married couple who have not traded in partnership and you are both applying for bankruptcy, you will each have to pay separate fees.
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How the High Court can deal with your bankruptcy petition

What options the court has when it considers your bankruptcy petition.
At your bankruptcy hearing the High Court has the following options.

Stay or delay the proceedings

The Court may choose this option if it needs further information before it can decide whether to make a bankruptcy order.

Dismiss the petition

This might be because they feel that an administration order would be more appropriate.

Bankruptcy order

If the Court makes a bankruptcy order, you will become bankrupt the moment the order is made. To find out what effect the bankruptcy order will have and the restrictions it places on you, see bankruptcy.

The official receiver's role in bankruptcy

The Official Receiver (OR) is part of The Insolvency Service (a branch within the Department for the Economy) - and is also an officer of the Court. The OR will be responsible for administering your bankruptcy specifically to find out how and why you became insolvent.

The OR will:

Protect your assets from the date of the bankruptcy order.

Inform your creditors that you have been declared bankrupt - by placing a notice of the bankruptcy in the Belfast Gazette and the Belfast Telegraph and by sending a report to creditors which will let them know the causes of the bankruptcy and if they will get their money back.

Act as your trustee in bankruptcy - unless the Court, a meeting of creditors or the Department for the Economy appoints an Insolvency Practitioner (IP) to take this role. The Court may appoint an IP at the bankruptcy hearing if the terms of an Individual Involuntary Arrangement (IVA) have failed. The trustee in bankruptcy is responsible for dealing with your debts incurred before the date of your bankruptcy.

The Official Receiver must also report to the Court any matters which indicate that you may have committed criminal offences in connection with your bankruptcy.
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Your duties as a bankrupt

What you must do if a bankruptcy order is made against you.
When a bankruptcy order has been made against you, you officially become bankrupt. You will have to give up any possessions of value and your interest in your home. It will almost certainly involve the closure of any business you run and the dismissal of your employees. Your name will appear on the individual insolvency register maintained by the Bankruptcy and Chancery Office at the High Court throughout your bankruptcy.

There are a number of things you must and must not do if you're made bankrupt:

Give the Official Receiver (OR) a full list of your assets and details of what you owe and who to, ie your creditors, and full details of your business and personal financial affairs, eg bank statements, financial records, statements etc. You will need to contact the OR as soon as possible once the bankruptcy order has been made - the Court will give you contact details. If you do not have to go immediately to the OR's office, they will ask you questions over the telephone. You may also have to go to the OR's office at a later date.

Collect and hand over your assets to the OR, with all your account books, records, bank statements, insurance policies and other papers relating to your assets and debts. To read about this, see bankruptcy.

Tell your trustee in bankruptcy about any assets and increases in income you receive during your bankruptcy.

Stop using your bank and building society accounts, credit cards and similar accounts straight away.

Don't get credit of £500 or more from any person without first telling them that you are a bankrupt.

Don't make payments direct to your creditors for money that you owed before the bankruptcy order was made. The OR will tell your creditors that you are bankrupt and tell them how much money - if any - will be shared out.

When your bankruptcy ends

Generally you will automatically become free from bankruptcy - known as 'discharged' - after a maximum of 12 months. However, it could be less if the OR concludes enquiries into your financial affairs sooner and files notice of this in the High Court.

Once you are discharged from bankruptcy, you are released (freed) from your bankruptcy debts and the restrictions imposed on you under the bankruptcy order. You will no longer be considered bankrupt.

You may still have certain obligations - for example, if you are making payments under an income payments order or agreement. In some cases - eg if you have not carried out your duties under the bankruptcy proceedings - your discharge could be suspended, effectively extending your bankruptcy.
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Is your business investment-ready?

Secure equity investment

In this guide:

Is private equity investment right for your business?

How to work out if private equity investment is right for your business
If you want to attract sound capital investment you need to make sure your business is investment-ready. You also need to understand how investors operate, because this will help you to find financial backers that are right for your business. There are two main types of capital investment:

private equity finance - where investors provide funding in return for shares in your business that are not listed on the stock exchange

debt finance from financers who provide capital in return for repayment with interest at a later date - eg banks

Differences between private equity finance and bank loans

Banks have a legal right to charge interest on a loan, and to demand repayment of the loan by a specific date. This is the case whether or not your business succeeds once you have taken out a loan.

Banks usually require you to secure your loan against business or personal assets - such as your home - which could be extremely risky if your business does not succeed - see bank finance.

However, private equity investors do not have these legal rights to interest and capital repayment, so the only way they can get their money back is through a capital gain if your business succeeds. They will want to take out more than they invested when they exit from your business.

Therefore, they look for high-growth potential businesses to invest in, and are likely to be more hands-on than banks. They can also often bring useful expertise into your business - see equity finance.

Read more on private equity.
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Is your business investment-ready?

Steps to take to ensure your business is investment ready
If your business has been operating for some time, potential investors will be interested in your past activities so that they know exactly what sort of business they will be investing in. Ensure you clear old debts or liabilities before you seek investment.

Investors will also want to know about your business' intellectual property. See intellectual property: the basics.

You should also make sure that you are ready for investment, by considering:

why you need funding - ideally for a specific reason such as expansion, or to develop a new product or market

how much funding you will need when you need the funding by

does your business have a high growth potential?

do you have an advantage over your competitors?

does your management team have the skills and experience that will be required by the growing business?

how you are going to pay any money back - you must be able to meet any repayments on time, including interest

what the right source of finance is for you - see bank finance and non-bank finance

For further information see business financing options - an overview.
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Value your business for investment

How to value your business and methods of valuation used by private equity businesses

When potential investors are considering whether to invest in your business they will need to know what it's worth.

How a business can be valued

There are various ways for private equity businesses to establish the value of your business to them. They may calculate the value of the company in comparison with the values of similar companies quoted on the stock market. This involves establishing the price/earnings ratio for your business.

Alternatively, they may calculate a value for your company that will give them their required rate of return over the period they anticipate being shareholders. Read more on private equity.

Another method of valuing your business is based on calculating the value of your assets. There are two types of business assets - tangible and intangible, and you need to include both in your valuation.

Tangible assets are physical, material and financial resources, such as plant, machinery and office equipment. Intangible assets are valuable resources that may not have a physical presence, such as brand value, skills and know-how and trade secrets.

For more information, see business assets.

Discounted cashflow anaylsis

You can also value your business by using discounted cashflow (DCF) analysis. DCF valuation is based on using projected future cashflows to calculate how much your business is worth - see value and market your business for sale.

Potential investors will also want to see how the value of your business is likely to change over time. Milestones, which are markers of how your business is developing, provide one measure of this.

Investors will be interested in the milestones that you have already achieved and the future milestones that your business must reach to be successful.

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Find the right private equity investor

How to find out which investors to approach and make sure you're ready for investment.
The main sources of private equity are:

venture capitalists (also known as private equity firms) - who are likely to provide finance of between £250,000 and £2 million at all investment stages - see venture capital

business angels - who tend to fund start-ups and early-stage businesses with smaller investments of between £10,000 and £500,000 - see business angels

For further information see six sources of equity finance.

Find out what private equity investors are looking for

You will need to find out what potential investors are looking for, so that you only approach people who are looking for businesses like yours. For example, you should make sure that you approach investors who would be interested in investing:

at the stage your business' development is at

in your sector

the amount of finance you are looking for

in your region

The British Private Equity & Venture Capital Association (BVCA) Directory of Members provides information about private equity firms' investment preferences.

If you are looking for private equity investment, you should also find out about the investor's own funding cycle. Private equity firms raise their own funds, invest them, and reap the profits over a period of between five to eight years.

It's useful to find out when your potential investor raised their last fund, how big it was and how many investments they have made. Have they already invested in businesses that you could usefully collaborate with? Or have they invested in your competitors?

Also, private equity firms usually finance new businesses early in their funding cycle, allowing time for the businesses to grow and return a profit on the investment. Towards the end of their funding cycle, private equity investors are more likely to invest in mature companies that are likely to offer quick financial returns.

Your business should look for investors that can offer useful knowledge, experience and relationships, as well as capital funding.
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Prepare your pitch to secure finance

What to include in your pitch to secure finance and how to structure your presentation
Your presentation to secure finance should show that you are confident, trustworthy, and an expert in your field. It should follow a logical, clear structure and last approximately 20 minutes.

Introduction

With your first slide, you should introduce yourself and your business and summarise the content of your presentation and the overall structure.

Define the problem your business is tackling

Your product or service should solve a problem that potential customers have or fill a gap in your market. You can explain how your business provides the solution and show the growth potential.

Describe your solution

Focus on the product or service in detail, ensuring that everything you say is relevant to the problem. Use case studies and facts and figures, and you can also include your sales history, testimonies from real customers, or competitor analysis.

Introduce your team

Discuss your team. Investors see a company’s team as critical to driving the business forward. Be prepared to answer questions about recruitment and your role within the company.

Present your business plan

You will need to have a comprehensive business plan incorporating a detailed marketing plan and realistic financial projections.

Potential investors will be specifically interested in:

financial forecasts, including your funding requirements

your plans for the business

whether the external investment is appropriate

Tailor the information you deliver to every investor you approach. See write a business plan: step-by-step.

Investors and lenders will want to know your intentions about the long-term future ie if you plan to stay in the business or if you want to grow it and sell it on.

Detail the investment required

Potential investors need to know how much money you require to make your venture work. Explain how you calculated the figures and how much cash you need to take the business to specific points or milestones. You should also highlight what would happen if a problem arises, eg a product is delayed.

Highlight the return on their investment

Show potential investors the benefits of their involvement and how you can improve their business. Be specific - have figures, outcomes and scenarios prepared and ready. Listen to the questions asked, take notes, be open and flexible, and be prepared to come back with revisions and new ideas. They will want to know what their financial returns will be eg how repayments will fit into your budget, when they can expect dividends and what they will be.

Key milestones

Discuss your upcoming goals and when you plan to achieve them. This part of the pitch illustrates how well you have thought through the detailed steps it will take to start making a profit.

The business exit strategy

Investors won’t sign up without having a plan in place to exit. Explain your exit strategy and make a final push to persuade them that this is a great opportunity.

Following the pitch, allow time for potential investors to ask questions.
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Prepare to secure equity investment

How to present a high-growth business plan to private equity investors
Once you have decided to seek equity finance, you will need a comprehensive business plan incorporating a detailed marketing plan and realistic financial projections.

You may find it helpful initially to hold discussions with your business adviser and to research potential investors.

Consider the following issues:

how much funding you need and what the funding is for

how much control you're hoping to retain and the skills the business needs

how long you need the funds for

Any potential investor will be looking for a number of core issues in your business plan:

what your funding needs are

whether your plans for the business are realistic

whether your venture is appropriate for external investment

Your business plan should seek to address these issues and you should tailor the information you provide to each investor you're approaching.

The plan should include a series of detailed financial forecasts, what you intend to do with the funding, how you'll repay the investor, your management's level of expertise and what the investor can expect in return - see tailor your business plan to secure funding and write a business plan: step-by-step.

Approaching investors and networking

Approach shortlisted investors directly through an introduction or contact, or through their association or network. Remember that many private investors are interested in specific industry sectors or geographical regions, so ensure your shortlist only includes suitable candidates.

Networking is an important way of finding investors, so go to events organised by your chamber of commerce in order to introduce yourself to people and get your business known to potential investors - see Northern Ireland business networks.

It is also possible suitable candidates can be found through recommendations from the industry you operate in or its associated network.

Read UK Business Angels Association (UKBAA) guidance on finding business angels.

For further information see secure equity investment: six top tips.
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Present your pitch to secure finance

How to successfully present your pitch to investors

Most investors will have heard many pitches before, so it’s important to impress them with your idea and encourage them to trust you so they will consider investing.

Be honest in your pitch

It’s good to be confident and passionate about your pitch, but make sure you don’t exaggerate the facts or figures. Be honest and avoid presenting graphs or charts that are unrealistic.

Be prepared for criticism

Listening to an investor criticise your idea can be difficult but avoid getting defensive. Focus on any flaws that may be identified and offer solutions. Take each rejection as an opportunity to improve on your delivery for the next pitch.

Explain why you want the money you have asked for

You should provide a clear outline of where the money is going. Think about how much money you need to achieve your primary objectives, and balance this figure with the portion of equity you’re willing to give away.

Provide facts

You want investors to trust what you’re saying in your pitch, so use facts and figures to back up your projections.

Be yourself

Try not to take on a persona or role when standing in front of a panel - be yourself and be honest.

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Recover debt through Court

In this guide:

Deciding whether to take your debt claim to court

Alternatives to court action to recover payment from customers, and checking whether they can afford to pay you.
Legal action should be a last resort to recover debts and you should explore all other options first:

Take all other reasonable steps, including communicating with the customer - see ensure customers pay you on time.

Consider some form of alternative dispute resolution (ADR).

Consider taking back your goods and services, if appropriate.

Mediation is a way of resolving disputes without the need to go to court. It involves using an independent third party - a mediator - who helps both sides come to an agreement.

Negotiation is when the people involved in the dispute - or their representatives, such as solicitors - discuss the issue until they reach an agreement that is acceptable to both sides.

Arbitration involves an independent third party deciding what should happen based on evidence given to them about the dispute.

Early neutral evaluation (ENE) is when people involved in a dispute send evidence to an independent third person who gives their opinion on the dispute.

If making a claim seems the only answer, you should consider your chances of winning. If your claim is disputed it could be difficult to prove the customer is at fault. You will need to provide as much evidence as you can of the validity of your claim, such as purchase orders or invoices, and copies of reminder letters.

The Advice Services Alliance provides further information on ADR.

Make sure the customer can pay

If the person or business you're taking action against has no assets or has a history of bad debt then you can't be certain of receiving all of the money owed.

Credit reference agencies can provide credit reports on businesses as well as on individual consumers. You will need to have some information ready, such as:

the name of the business or person you want to get a credit report for

the last known address

why you want the credit report

You can check a company's bankruptcy status and outstanding debts with the NI Courts and Tribunals Service.

If you win your claim, the customer is required to pay the sum claimed.

Be prepared for the costs

You will have to pay court fees in advance. However, they may be recovered from the defendant if you win. Note that:

court fees are payable when you issue a claim and at different stages of the claim, including if you have to enforce the judgment

if you lose, or do not succeed in enforcing your judgment, you will not be able to reclaim the court fees

if you win and succeed in enforcing the judgment, you may be able to claim your solicitor's fees and other costs back from the defendant, so long as they are outlined on the court order

if you refuse to consider alternative ways of sorting out your claim before taking court action, you may not be able to claim your costs back and the court may order you to pay your customer's court costs, even if you win the case

you can check the current court fees

you may be able to receive assistance with court fees
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Choosing the right legal route for your debt claim

Differences between the small claims track, multi-track, fast track and the high court.
The courts each have a different claim limit.

Small claims courts - for simple cases up to £5,000. For example consumer claims, faulty goods, goods not supplied, goods recovery, debt, breach of contract etc.

County court - for cases from £5,000 to £30,000.

High Court - for complex cases and all cases over £30,000.

Even once a claim has been issued it is not too late to sort out the dispute with the customer through some form of alternative dispute resolution and so avoid further court action.

The final warning letter

Whichever course of legal action you choose, you must send a final warning letter to the customer before you begin. You should do this because:

it often prompts payment

the courts may penalise you on costs if one is not sent

It is advisable to send the letter using a signed-for delivery service so that the customer can't deny receiving it.

Online claims

If your claim is for a fixed amount that is below £5,000, you may be able to start a claim using the NI Courts and Tribunals Service's small claims online service.
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Using solicitors and debt recovery agents

In certain cases when collecting money owed to you it may be sensible to seek professional help.
If your case is straightforward, you could prepare the claim, present the case and handle the enforcement on your own. Most people choose not to use solicitors in debt recovery.

But there may be times when you decide you want to seek advice from a solicitor. You should note that:

legal aid is not usually available for debt recovery

legal costs aren't normally recoverable

If your claim is likely to be disputed, if your claim is for a large amount or if the case is complicated, it is probably sensible to get professional help from a solicitor or debt recovery agent.

Choosing a solicitor

Finding a solicitor can be a challenge, and often a personal recommendation is a good way to choose. Before you make a decision, ask the following questions:

Is there a department specialising in debt recovery?

Does the firm have a mediator or dispute resolution service that you can consider as an alternative option?

How will you be charged - rate per hour plus expenses or a percentage of the sum recovered?

If they do business on a 'no win, no fee' basis, are there any hidden costs? Will you have to pay court costs?

See choose a solicitor for your business.

Debt recovery agents

Other organisations working in debt collection are debt recovery agents and credit agents.

Debt recovery agents employ solicitors and take legal action to recover your money. The Credit Services Association (CSA) provides a directory of debt recovery agents.

Some credit agencies, though not all, will take over the collection of debt. If successful, you will receive an agreed proportion of the total amount owing, while the agency will keep the rest. They usually try to recover debt by:

sending out routine letters

telephoning customers
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Issuing your debt claim

The forms and evidence you will need to issue a claim for payment.
If your claim is for a fixed amount that is below £5,000, you can issue your claim in a small claims court. To do this you need to complete a small claims application form and return it to the court. You can complete your small claims application online with the NI Courts and Tribunals Service.

Completing the form

Complete the form carefully. For more information, download the NI Courts and Tribunals Service small claims user guide (PDF, 1MB).

You are entitled to add the court fee and interest to the amount you are claiming. If a solicitor prepares the claim, other charges may apply that you can also add to the claim.

The claim form must be signed by you or by someone authorised to sign for you.

Issuing the claim

You can send or take the claim to any courthouse in Northern Ireland. If the claim is defended, the case will be transferred to the defendant's local court.

You should supply three copies of the claim form to the issuing court. If there are additional defendants you should send a form for each one.

You will have to pay the court fee up front.

Court staff will check that everything is in order, however they are not legally trained and will not be able to provide legal advice. If it is in order, the claim will be given a claim number and served.

The NI Courts and Tribunals Service provide contact details for all NI courts.

You should gather any key documents supporting your case, such as invoices or a delivery sheet signed by your customer. You may have to submit copies of these to the defendant and to the court.
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What happens after your debt claim has been served

Court procedures after your claim has been issued, and what the defendant's and your options are.
The defendant is allowed 14 days from the deemed date of service of the claim to reply to the claim. However, if the defendant acknowledges service of the claim they can have an extra 14 days. The maximum is 28 days.

On receipt of the court claim the defendant may:

do nothing

pay the amount claimed

admit the claim and make a written application about payment

acknowledge service and have a 14 day extension to file a defence

admit the claim and attend court to make an application about payment

defend part of the claim, admit part of the claim and pay the admitted part

defend part of the claim, admit part of the claim and ask for time to pay the admitted part

issue a counterclaim

If the defendant chooses to defend the claim the defence will be sent to you along with an allocation questionnaire for you to complete. You will usually be given 14 days to return the questionnaire.

Be aware that the defendant may file a counterclaim against you. If they do, you will be able to file a defence to the counterclaim and submit it to the court at the same time as returning the allocation questionnaire. See what happens if your debt claim is contested.

Sometimes the judge may deal with the case without a hearing, using written evidence. For example, if you have no chance of successfully winning the claim, or there are no reasonable grounds for you bringing the claim, it may be dismissed without a hearing.

What to do if no defence is entered

If the debtor does not defend the case, you can apply for a judgment from the court at the end of the permitted time. If you issued the claim online you will be able to enter a judgment online. Usually there will be no hearing and a judgment will be made in your favour.
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What happens if your debt claim is contested

The procedures if a defence is entered and the case proceeds to a court hearing or trial.
If a defence is entered, the case may progress to a hearing or trial at the defendant's local court. Unless an agreement is reached first a judge will decide the case.

Even if you have started court action, it is not too late to try to reach an agreement with the defendant through some form of alternative dispute resolution.

If you agree to mediate with the other party and it doesn't work, you can still continue with court action.

The small claims court

This is a formal hearing and is usually held quickly (since the Covid-19 pandemic some cases are held remotely via sight link). In a small claims case:

Evidence is not normally given under oath.

The claimant and defendant are expected to represent themselves. You can be represented if you wish, but will not be awarded costs for this.

You may be able to claim limited costs for loss of earnings while attending court, travelling and overnight expenses, and the costs of any witnesses and experts - such as a doctor or surveyor.

The judge may intervene more than in the other courts as the claimant and defendant are probably not skilled at presenting a case.

At the end of the hearing the judge tells you their decision and briefly explains the reasons behind it.

After the hearing both you and the defendant will be sent a copy of the judgment.

View a list of small claims forms available to download from the NI Courts and Tribunals Service.

County court and high court

Taking a case to the county court or to the high court will be a longer process:

Procedures are much more formal and the case will normally go to trial in court.

The claimant and defendant are not expected to represent themselves. The preparation of the case can be complex and there may be witnesses or experts with knowledge of particular aspects of the case called to give evidence.

Costs are usually awarded, including court fees and legal costs.
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Recovering interest on unpaid debts

The types of interest you can charge on unpaid debts and whether you are entitled to claim them back in court.
You have the right to ask your customer to pay interest under three circumstances. Only one sort of interest can be applied at any one time.

Interest permitted by a contract

Interest written into the contract takes precedence over other forms of interest. However, it must amount to a 'substantial remedy'. In other words it should cover the cost of late payment or deter late payment and should be a fair alternative to statutory interest.

Interest claimed on an issued claim form

This is simple interest only and is at a flat rate of 8% unless the court orders a different rate. It only applies if the case is won or is undefended.

The interest runs from when payment was due until judgment is given by the court. If payment is made before judgment, interest stops at that date. In some circumstances interest can be charged after judgment.

Statutory interest on commercial debts

Statutory interest can be claimed under the Late Payment of Commercial Debts (Interest) Act 1998. In some circumstances costs of up to £100 can also be claimed.

The rate of interest is 8% over the Bank of England reference rate - the base rates are set on 30 June and 31 December.

Statutory interest does not apply when you sell to the public. Both seller and buyer must be acting in a commercial capacity.

For contracts made since 7 August 2002, all businesses and the public sector can claim against all businesses and the public sector.

Statutory interest can be claimed after late payment has been received. The limit is six years in Northern Ireland.

The interest usually runs from 30 days after it was due and claimed. A contract or custom and practice may change this, but only if it gives a substantial remedy.

A contract can't exclude statutory interest, but it is not compulsory to claim it.

Late payment legislation guidance.
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Enforcement of civil court orders in Northern Ireland

How to seek a court order to recover debts if you win your claim and the customer still fails to pay.
The Enforcement of Judgments Office (EJO) is a branch within the Northern Ireland Courts and Tribunals Service and is responsible for the recovery of money, goods and property, where the court has ordered its recovery.

Register of Judgments

The EJO maintains a Register of Judgments, sometimes known as the EJO Debt Register. It records all court orders that have been sent to EJO for recovery action in the previous six years.

It also provides information about those court orders, if the court order relates to recovery of money and whether or not the amount has been paid in full.

Find out more about the EJO Debt Register.

When may the EJO be used?

A creditor (the person owed money or wants to recovery goods or property) can make a claim against a debtor (the person who owes the money, or is in possession of the goods or property) in court. A Court Judgment may then be made giving details of what is owed or to be recovered and to whom. If the debt is not paid, or the goods or property returned, the creditor may instruct EJO to enforce their court order on their behalf.

Creditors must make an application to have their court order enforced using the appropriate application forms. The creditor must pay an upfront fee to the EJO but ultimately it will be added to the debt which the debtor must pay back.

The EJO provides some help and advice documents.

How to address matters before the EJO become involved

If a court order is made stating you should return goods or property, you should immediately contact the creditor to arrange the return of the goods or property named on the court order.

If the court order is in respect of money, you should contact the creditor and make an offer to repay the debt in full or try to arrange to pay it by instalments.

How does the EJO recover debts?

The EJO will issue correspondence to you asking you to contact the office to:

make payment in full

discuss a repayment plan

take information about your ability to pay the debt

If a debtor does not contact the EJO, they will begin information gathering and contact third parties, including credit companies, banks, employers and HMRC as well as other government department and agencies. They will decide how the debt can be recovered in the absence of you contacting the office. The EJO may also contact third parties to check any unverified information that is supplied by a debtor.

However, in some instances, the EJO might not be able to recover the amount owed if the debtor doesn't have income or assets to allow for an enforcement order to be made. This is called unenforceability, and the EJO will issue a notification to both the debtor and the creditor.

Find out more about enforcement orders with the Northern Ireland Courts and Tribunals Service.

Rent and mortgage arrears - repossession

The EJO is also responsible for the enforcement of land and property orders. If you're behind with your rent or mortgage payments, your landlord or mortgage lender may get a Possession Order that, if not resolved, may lead to you being evicted from your home.

This means your clothes, furniture and all other goods will be taken away by EJO and safely stored. To have your goods returned, you must pay the costs of removal and storage as advised by EJO (the costs incurred by EJO in carrying out the repossession).

Arrears on Hire Purchase Goods

The EJO is also responsible for the enforcement of court orders which relate to goods on hire purchase (such as cars, boats, or caravans). In this case, the EJO will issue an Order for the Delivery of Possession of Goods. This will be served on the person required to return the goods and the EJO will arrange for the removal and return of the goods named on the court order to the party entitled to those goods.
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Winding up and bankruptcy petitions

How to issue a petition to close the business or enforce a judgment if your customer does not pay you.
Most suppliers, investors and staff try to get their money by issuing a claim. But you can issue a winding up (company) petition or a bankruptcy (individual) petition instead.

Winding up and bankruptcy are also ways of enforcing a judgment after a claim has been won, in an effort to actually get your money.

Bankruptcy and winding up procedures should not be used as a means to collect debts. They should only be used when the creditor believes the debtor cannot pay his / her debts.

After making a bankruptcy / winding up order, the Court usually appoints the Official Receiver or Trustee to be receiver and manager of the bankrupt's affairs.

The Official Receiver / Trustee has responsibility from the date of the bankruptcy / winding up for administering and protecting the bankrupt's assets. They must also arrange to pay off outstanding debts.

Creditors may sometimes receive payment of their debt, but more usually they will receive a percentage of what is owed to them.

Debts will be paid in the following order of priority:

secured creditors - fees and charges of liquidation/bankruptcy

floating charge holders - companies only

preferential debtors, including unpaid wages to employees

unsecured creditors, including HM Revenue & Customs

interest payable on debts

shareholders - companies only

How winding up works

It applies to a company rather than an individual.

After the winding up the company ceases to exist.

If the company is insolvent at the time, not all the creditors get paid in full.

Rules apply and each creditor gets a percentage of what they are owed.

For more information on winding up, see company liquidation.
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How bankruptcy petitions work

How to issue a bankruptcy petition.
Bankruptcy applies to a person or a general partnership. If it is a general partnership, all the partners are made bankrupt. The assets are sold and the proceeds are paid to the unpaid creditors.

Find further guidance on bankruptcy.

The threat and how it works

Often the mere threat of winding up or bankruptcy is very effective. But if the customer still refuses to pay, you might consider the following steps:

A statutory demand, from a legal stationer or solicitor, or downloadable, can be prepared and issued by the creditor without necessarily using a solicitor to complete the paperwork for you.

The demand must be delivered to the customer, preferably by hand or by post, using the special delivery or registered mail services. In the case of a registered company, the statutory demand should be served at the registered office.

On receipt, the customer has a fixed number of days to pay or respond.

If they do not do so, you can issue a winding up (company) or bankruptcy (individual) petition.

If you follow all the procedures correctly, and the court finds in your favour, the customer will be wound up or made bankrupt. However, just because you issue the petition does not mean you get priority over whatever money becomes available.

The law assumes that a statutory demand merely paves the way for a petition. But it can be a very powerful debt collecting device in its own right, without the need to proceed to a petition. If the demand results in the issue of a petition (not an order for winding up) it may be publicised on the internet. This means that small businesses have an effective debt collection tool against customers of all sizes.

You should seek legal advice before you act, and you should only act if the money is definitely owing.

As a last resort, if the amount you're owed is more than £750, you can apply to make an individual debtor bankrupt, or issue insolvency proceedings if the debtor is a limited company. Such proceedings can be costly.

Appointing a liquidator or trustee

Where a company is put into liquidation or a person is made bankrupt, you may have to appoint a licensed liquidator or trustee in bankruptcy.

Insolvency practitioners charge fees to the money recovered and you may have to guarantee these fees if the money recovered is not enough.
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London Stock Exchange: the difference between AIM and the Main Market

London Stock Exchange: AIM

In this guide:

What is AIM

How the AIM works, and the AIM rules.

AIM is one of the equity markets of the London Stock Exchange. It is intended to help smaller, growing businesses - to raise capital for growth and can help raise the profile and visibility of companies with investors, suppliers and customers.

Some businesses consider AIM as a stepping stone to a listing on the London Stock Exchange Main Market, which they may join as the business develops. However, you have no obligation to move from AIM to the Main Market, and it can remain an efficient source of investment and equity finance for your business.

How AIM works

Floating a business on a public market such as AIM allows a company to raise capital in exchange for a stake in its business. These shares are tradeable on a public platform and companies are required to comply with ongoing regulatory obligations to keep investors informed and to attract new investors.

For more information, see considerations when joining AIM and the requirements for joining AIM.

There are a number of benefits of raising equity finance on AIM, including more flexible regulatory requirements, which may make it a more attractive option for smaller, growing companies. However, your business will become answerable to its shareholders and will lose some control over business decisions.

The AIM Rules

The AIM Rules set out the requirements for joining the market as well as the ongoing requirements once on market.

The most fundamental rule requires that a company must appoint a Nominated Adviser ('nomad') before joining AIM and for as long as the company remains listed on the market - see the role of the Nominated Adviser and other advisers.

Nomads are typically corporate finance firms approved by the London Stock Exchange. The London Stock Exchange provides a Nominated Advisers directory.

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Considerations when joining AIM

The potential benefits and things to consider when joining AIM.

Before joining AIM, your company should carefully consider the issues involved in joining a public market and seek appropriate legal and financial advice.

Joining a public market such as AIM will involve major changes in the way that you run your business, and certain requirements will be imposed on senior management. You should consider the following points:

Cost

The initial costs of flotation can be substantial, and there will usually be ongoing costs of maintaining a public market listing, including the company's fees due to the company's nominated adviser and professional adviser.

Market fluctuations

Your share price can be affected by a number of factors beyond your control, including market sentiment (the general attitude of investors towards price development in a market), economic conditions or developments in the sector, such as increased competition or new competitors.

Responsibility to shareholders

In return for the capital they provide, shareholders in your company will expect the business to deliver value.

The need for transparency

Being in the public domain will lead to increased scrutiny of the company, its performance and its directors. Prompt announcements about new developments will need to be made, whether positive or negative.

Investor relations

To maximise the benefits of being on a public market such as AIM and attract further investor interest in your company's shares, it will be crucial to keep investors informed.

See London Stock Exchange guidance on AIM.

Help

London Stock Exchange

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Advantages of joining AIM

Benefits of joining AIM include business growth and the opportunity for companies to raise their profile.
There are a number of benefits of joining AIM. The market can be a useful source of finance for business growth and can assist companies in raising their profile. Joining AIM can assist your company through providing:

access to a diverse range of investors - the opportunity to raise growth capital to enable your business to achieve its growth and innovation potential within a balanced regulatory environment

increased visibility and profile with key stakeholders, including customers and suppliers - which can aid access to global markets

access to a knowledgeable advisory community experienced in working with growing businesses

the ability to encourage employee commitment through offering share schemes to staff members

placing an objective value on the company's business

increasing the company's ability to make acquisitions, using quoted shares as currency

creating a market for the company's shares, helping to broaden the shareholder base

How is AIM a relevant source of finance for small and medium-sized companies?

If you are a smaller, growing business seeking finance for development and growth, AIM could be an appropriate source of finance for you. For example:

The AIM entry criteria are tailored to smaller, growing companies.

There is no prescriptive minimum entry size and/or trading history criteria.

Shareholder approval is only required for the most fundamental transactions - a reverse takeover or disposal resulting in a fundamental change of business.

Tax benefits - AIM shares have tax benefits for investors. Tax reliefs available can include inheritance tax and qualification for inclusion in Enterprise Investment Schemes and Venture Capital Trusts.

More appropriate costs - the costs of joining AIM may be more suitable for smaller companies than those that might be incurred by listing on the Main Market or obtaining debt finance such as a bank loan.

For further information see London Stock Exchange guidance on AIM.
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Is AIM right for your business?

AIM entry criteria, investment readiness and alternatives for your business.
Although there are a number of benefits to becoming publicly quoted on AIM it is not necessarily suitable for all companies.

Becoming a public company on a market such as AIM will involve major changes in the way that the business is run. It involves taking in outside shareholders and accepting the responsibilities of increased transparency and reporting obligations, together with the associated time and cost.

Beyond complying with additional regulatory responsibilities, you must also be willing to devote the time and resources necessary to communicate effectively with the market.

Ultimately, the decision to float your company on a public market is yours. You should take into account all the potential benefits and considerations, and decide whether external equity finance will be an appropriate form of finance for the size and stage of your business.

For more information, see considerations when joining AIM.

Investment readiness

AIM is designed for smaller, growing companies. In order to assess whether your business will be an attractive prospect for potential investors, and if your business is ready to join AIM, you should first consider whether you have:

a clear business plan - see write a business plan: step-by-step and tailor your business plan to secure funding

the relevant skills and experience in your management team

a trading record that compares favourably with your peers

potential to increase the market share

a realistic market valuation

a definite idea of how much of the business you are intending to float and how this will affect future development

For more information, see secure equity investment.

Alternative sources of finance

If a stock market listing is not suitable for your business, there are alternative ways to increase your business capital including:

private equity, either through a firm or individual such as a venture capitalist or business angel

selling the business to a larger business or institutional investor

debt finance - through obtaining a loan or mortgage

management or employee buy-out
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London Stock Exchange: the difference between AIM and the Main Market

Admission criteria differences between AIM and the Main Market.

If you are interested in floating your business on a stock market but feel that AIM is not the correct market for your company, you could consider the London Stock Exchange Main Market. The Main Market is usually reserved for more established businesses and has more stringent admission criteria and more demanding ongoing obligations.

Admission criteria differences - AIM and the Main Market

AIM	Main Market
No prescribed level of shares to be in public hands	Minimum 25 per cent shares in public hands
No trading record requirement	Normally three year trading record required
No prior shareholder approval for most transactions*	Prior shareholder approval required for substantial acquisitions and disposals (Premium Listing only)
Admission documents not pre-vetted by the Exchange nor by the UKLA in most circumstances	Pre-vetting of the prospectus by the UKLA
Nominated adviser required at all times	Sponsors needed for certain transactions (Premium Listing only)
No minimum market capitalisation	Minimum market capitalisation
*Unless the transaction is a reverse takeover or disposal resulting in a fundamental change of business

For further information see London Stock Exchange: Main Market.

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The requirements for joining AIM

AIM listing requirements, including regulations, legal requirements and ongoing obligations.
Typically, the process of joining AIM can take between three and six months from the time you make an official decision to join. However, this can vary greatly depending on the complexity of your business and the level of due diligence (analysis of financial records and other vital aspects of a business, to confirm facts) that would be required to comply with the admission requirements.

AIM listing requirements

There are no prescriptive eligibility criteria for joining AIM, however, a company must:

Appoint a Nominated Adviser ('nomad') and retain their services for the duration of the time the company remains on AIM. The nomad provides advice on the application process and on complying with the AIM Rules.

Appoint a corporate broker and retain their services throughout the time the company remains on market.

Ensure shares are freely transferable and eligible for electronic settlement (allowing the trading of shares online without paperwork).

Prepare an admission document in compliance with the AIM Rules with the help of your advisers and publish it.

Your nomad will be able to guide you through most of the admission process and will be responsible for ensuring that you comply with the specific requirements under the AIM Rules. For further information see the role of the Nominated Adviser and other advisers.

For further information, see London Stock Exchange guidance on AIM.

Other legal requirements

In addition to the AIM rules, an applicant must comply with:

UK company law, if incorporated in the UK

UK legal requirements for offers of securities - for more information see shares and shareholders

the Financial Services and Markets Act 2000, which makes it an offence to abuse or mislead the market

legal requirements in all other countries where its shares are offered

company and securities laws of the country in which it is incorporated, if this is outside the UK
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The role of the Nominated Adviser and other advisers

Who you need to appoint to help your company join and remain on AIM.
If your business decides to join AIM, you will be required to appoint and retain advisers who will provide advice during the process of flotation, and throughout the time the business remains on AIM. You will need the following advisers, and in addition, you may look to appoint the services of investor relations and public relations organisations:

Nominated Adviser ('nomad')

Broker

Reporting accountant

Legal adviser

The role of the nomad

The nomad assists a company through the admission process and is responsible to the London Stock Exchange for assessing the appropriateness of a company seeking admission to AIM. Once the company has been admitted to AIM, the nomad will continue to provide advice and guidance on all aspects of the AIM Rules. They will ensure that the Directors are aware of their continuing responsibilities and obligations. You must retain a nomad at all times while listed on AIM.

Nomads are typically corporate finance firms approved by the London Stock Exchange to act in such a capacity.

The London Stock Exchange provides a Nominated Advisers directory.

The role of the broker

The broker is a securities house which will also be a member of the London Stock Exchange and will be responsible for any initial fundraising at flotation, and for bringing together buyers and sellers to encourage trading in your shares. The broker may be from the same firm as the nomad if a company chooses to appoint a firm which performs both functions.

The role of the reporting accountant

The reporting accountant will independently review your company's financials and will assist you in preparing all the necessary financial information that must be included in the AIM admission document. See choose an accountant for your business.

The role of the legal adviser

The legal adviser will conduct due diligence on behalf of the nomad, including verifying the statements given in the AIM admission document. The legal adviser will also provide ongoing advice to the board of your company on your continuing legal obligations. See choose a solicitor for your business.
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Read more about London Stock Exchange: the difference between AIM and the Main Market

Advantages of joining AIM

London Stock Exchange: AIM

In this guide:

What is AIM

How the AIM works, and the AIM rules.

AIM is one of the equity markets of the London Stock Exchange. It is intended to help smaller, growing businesses - to raise capital for growth and can help raise the profile and visibility of companies with investors, suppliers and customers.

Some businesses consider AIM as a stepping stone to a listing on the London Stock Exchange Main Market, which they may join as the business develops. However, you have no obligation to move from AIM to the Main Market, and it can remain an efficient source of investment and equity finance for your business.

How AIM works

Floating a business on a public market such as AIM allows a company to raise capital in exchange for a stake in its business. These shares are tradeable on a public platform and companies are required to comply with ongoing regulatory obligations to keep investors informed and to attract new investors.

For more information, see considerations when joining AIM and the requirements for joining AIM.

There are a number of benefits of raising equity finance on AIM, including more flexible regulatory requirements, which may make it a more attractive option for smaller, growing companies. However, your business will become answerable to its shareholders and will lose some control over business decisions.

The AIM Rules

The AIM Rules set out the requirements for joining the market as well as the ongoing requirements once on market.

The most fundamental rule requires that a company must appoint a Nominated Adviser ('nomad') before joining AIM and for as long as the company remains listed on the market - see the role of the Nominated Adviser and other advisers.

Nomads are typically corporate finance firms approved by the London Stock Exchange. The London Stock Exchange provides a Nominated Advisers directory.

Help

London Stock Exchange

Actions

AIM guidance for companies and advisers

Also on this site

Floating on the stock market

London Stock Exchange: Main Market

Venture capital

Content category

Finance

Source URL
/content/what-aim

Links
Considerations when joining AIM

The potential benefits and things to consider when joining AIM.

Before joining AIM, your company should carefully consider the issues involved in joining a public market and seek appropriate legal and financial advice.

Joining a public market such as AIM will involve major changes in the way that you run your business, and certain requirements will be imposed on senior management. You should consider the following points:

Cost

The initial costs of flotation can be substantial, and there will usually be ongoing costs of maintaining a public market listing, including the company's fees due to the company's nominated adviser and professional adviser.

Market fluctuations

Your share price can be affected by a number of factors beyond your control, including market sentiment (the general attitude of investors towards price development in a market), economic conditions or developments in the sector, such as increased competition or new competitors.

Responsibility to shareholders

In return for the capital they provide, shareholders in your company will expect the business to deliver value.

The need for transparency

Being in the public domain will lead to increased scrutiny of the company, its performance and its directors. Prompt announcements about new developments will need to be made, whether positive or negative.

Investor relations

To maximise the benefits of being on a public market such as AIM and attract further investor interest in your company's shares, it will be crucial to keep investors informed.

See London Stock Exchange guidance on AIM.

Help

London Stock Exchange

Also on this site

Floating on the stock market

London Stock Exchange: Main Market

Content category

Finance

Source URL
/content/considerations-when-joining-aim

Links
Advantages of joining AIM

Benefits of joining AIM include business growth and the opportunity for companies to raise their profile.
There are a number of benefits of joining AIM. The market can be a useful source of finance for business growth and can assist companies in raising their profile. Joining AIM can assist your company through providing:

access to a diverse range of investors - the opportunity to raise growth capital to enable your business to achieve its growth and innovation potential within a balanced regulatory environment

increased visibility and profile with key stakeholders, including customers and suppliers - which can aid access to global markets

access to a knowledgeable advisory community experienced in working with growing businesses

the ability to encourage employee commitment through offering share schemes to staff members

placing an objective value on the company's business

increasing the company's ability to make acquisitions, using quoted shares as currency

creating a market for the company's shares, helping to broaden the shareholder base

How is AIM a relevant source of finance for small and medium-sized companies?

If you are a smaller, growing business seeking finance for development and growth, AIM could be an appropriate source of finance for you. For example:

The AIM entry criteria are tailored to smaller, growing companies.

There is no prescriptive minimum entry size and/or trading history criteria.

Shareholder approval is only required for the most fundamental transactions - a reverse takeover or disposal resulting in a fundamental change of business.

Tax benefits - AIM shares have tax benefits for investors. Tax reliefs available can include inheritance tax and qualification for inclusion in Enterprise Investment Schemes and Venture Capital Trusts.

More appropriate costs - the costs of joining AIM may be more suitable for smaller companies than those that might be incurred by listing on the Main Market or obtaining debt finance such as a bank loan.

For further information see London Stock Exchange guidance on AIM.
Also on this site

Floating on the stock market

London Stock Exchange: Main Market

Content category

Finance
Source URL
/content/advantages-joining-aim

Links
Is AIM right for your business?

AIM entry criteria, investment readiness and alternatives for your business.
Although there are a number of benefits to becoming publicly quoted on AIM it is not necessarily suitable for all companies.

Becoming a public company on a market such as AIM will involve major changes in the way that the business is run. It involves taking in outside shareholders and accepting the responsibilities of increased transparency and reporting obligations, together with the associated time and cost.

Beyond complying with additional regulatory responsibilities, you must also be willing to devote the time and resources necessary to communicate effectively with the market.

Ultimately, the decision to float your company on a public market is yours. You should take into account all the potential benefits and considerations, and decide whether external equity finance will be an appropriate form of finance for the size and stage of your business.

For more information, see considerations when joining AIM.

Investment readiness

AIM is designed for smaller, growing companies. In order to assess whether your business will be an attractive prospect for potential investors, and if your business is ready to join AIM, you should first consider whether you have:

a clear business plan - see write a business plan: step-by-step and tailor your business plan to secure funding

the relevant skills and experience in your management team

a trading record that compares favourably with your peers

potential to increase the market share

a realistic market valuation

a definite idea of how much of the business you are intending to float and how this will affect future development

For more information, see secure equity investment.

Alternative sources of finance

If a stock market listing is not suitable for your business, there are alternative ways to increase your business capital including:

private equity, either through a firm or individual such as a venture capitalist or business angel

selling the business to a larger business or institutional investor

debt finance - through obtaining a loan or mortgage

management or employee buy-out
Help

London Stock Exchange

Actions

London Stock Exchange guidance on AIM

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London Stock Exchange: Main Market

Content category

Finance
Source URL
/content/aim-right-your-business

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London Stock Exchange: the difference between AIM and the Main Market

Admission criteria differences between AIM and the Main Market.

Admission criteria differences - AIM and the Main Market

AIM	Main Market
No prescribed level of shares to be in public hands	Minimum 25 per cent shares in public hands
No trading record requirement	Normally three year trading record required
No prior shareholder approval for most transactions*	Prior shareholder approval required for substantial acquisitions and disposals (Premium Listing only)
Admission documents not pre-vetted by the Exchange nor by the UKLA in most circumstances	Pre-vetting of the prospectus by the UKLA
Nominated adviser required at all times	Sponsors needed for certain transactions (Premium Listing only)
No minimum market capitalisation	Minimum market capitalisation
*Unless the transaction is a reverse takeover or disposal resulting in a fundamental change of business

For further information see London Stock Exchange: Main Market.

Also on this site

Floating on the stock market

Content category

Finance

Source URL

/content/london-stock-exchange-difference-between-aim-and-main-market

Links

The requirements for joining AIM

AIM listing requirements, including regulations, legal requirements and ongoing obligations.
Typically, the process of joining AIM can take between three and six months from the time you make an official decision to join. However, this can vary greatly depending on the complexity of your business and the level of due diligence (analysis of financial records and other vital aspects of a business, to confirm facts) that would be required to comply with the admission requirements.

AIM listing requirements

There are no prescriptive eligibility criteria for joining AIM, however, a company must:

Appoint a Nominated Adviser ('nomad') and retain their services for the duration of the time the company remains on AIM. The nomad provides advice on the application process and on complying with the AIM Rules.

Appoint a corporate broker and retain their services throughout the time the company remains on market.

Ensure shares are freely transferable and eligible for electronic settlement (allowing the trading of shares online without paperwork).

Prepare an admission document in compliance with the AIM Rules with the help of your advisers and publish it.

Your nomad will be able to guide you through most of the admission process and will be responsible for ensuring that you comply with the specific requirements under the AIM Rules. For further information see the role of the Nominated Adviser and other advisers.

For further information, see London Stock Exchange guidance on AIM.

Other legal requirements

In addition to the AIM rules, an applicant must comply with:

UK company law, if incorporated in the UK

UK legal requirements for offers of securities - for more information see shares and shareholders

the Financial Services and Markets Act 2000, which makes it an offence to abuse or mislead the market

legal requirements in all other countries where its shares are offered

company and securities laws of the country in which it is incorporated, if this is outside the UK
Help

London Stock Exchange

Also on this site

Floating on the stock market

London Stock Exchange: Main Market

Company shares and shareholders

Content category

Finance
Source URL
/content/requirements-joining-aim

Links
The role of the Nominated Adviser and other advisers

Who you need to appoint to help your company join and remain on AIM.
If your business decides to join AIM, you will be required to appoint and retain advisers who will provide advice during the process of flotation, and throughout the time the business remains on AIM. You will need the following advisers, and in addition, you may look to appoint the services of investor relations and public relations organisations:

Nominated Adviser ('nomad')

Broker

Reporting accountant

Legal adviser

The role of the nomad

The nomad assists a company through the admission process and is responsible to the London Stock Exchange for assessing the appropriateness of a company seeking admission to AIM. Once the company has been admitted to AIM, the nomad will continue to provide advice and guidance on all aspects of the AIM Rules. They will ensure that the Directors are aware of their continuing responsibilities and obligations. You must retain a nomad at all times while listed on AIM.

Nomads are typically corporate finance firms approved by the London Stock Exchange to act in such a capacity.

The London Stock Exchange provides a Nominated Advisers directory.

The role of the broker

The broker is a securities house which will also be a member of the London Stock Exchange and will be responsible for any initial fundraising at flotation, and for bringing together buyers and sellers to encourage trading in your shares. The broker may be from the same firm as the nomad if a company chooses to appoint a firm which performs both functions.

The role of the reporting accountant

The reporting accountant will independently review your company's financials and will assist you in preparing all the necessary financial information that must be included in the AIM admission document. See choose an accountant for your business.

The role of the legal adviser

The legal adviser will conduct due diligence on behalf of the nomad, including verifying the statements given in the AIM admission document. The legal adviser will also provide ongoing advice to the board of your company on your continuing legal obligations. See choose a solicitor for your business.
Help

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/content/role-nominated-adviser-and-other-advisers

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Read more about Advantages of joining AIM

Grants and government support for businesses

Business financing options - an overview

In this guide:

Bank finance explained

Overview of the different types of bank finance and support available for businesses.
Several types of bank finance are available, with different packages to suit your needs as your business requirements change.

Short-term finance

Overdrafts are used with business bank accounts and are a flexible source of working capital for short-term needs.

Bridging finance is provided by the bank to businesses to maintain cashflow while awaiting funds from grant cheques, drawdown of commercial mortgages or loan agreements, or other confirmed sources of future income.

Invoice finance includes factoring and invoice discounting. It offers ways to access working capital by unlocking the value of invoices. Interest rates and charges apply on the cash advanced. Invoice discounting allows you to draw on funding secured against approved invoices, while in factoring you can sell invoices to your financier.

Medium-term finance

Term loans have a fixed or variable interest rate and mature over a one- to seven-year period. They are typically used to buy fixed assets such as property or machinery or other purchases of a capital nature.

Asset finance and leasing options allow businesses to spread the ownership associated with buying assets. When you buy assets through leasing finance, the leasing bank buys the equipment for you to use, in exchange for regular payments.

Long-term finance

Commercial mortgages are provided by banks to finance the purchase of business premises. Types of mortgage available include repayment, commercial endowment or pension. You can get advice on providers of commercial mortgages from your bank's business adviser or a commercial mortgage broker.

Fixed asset loans are loans for assets that cannot easily be turned into cash - eg property, plant or machinery. The loans can be fixed for up to ten years. With this type of loan, the asset itself is the collateral and can be repossessed if you do not maintain repayments.

For more information see bank finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/bank-finance-explained

Links
What is equity finance?

Sources of equity finance for businesses, including shareholders, crowdfunding and the stock market.
Equity finance is a way of raising capital from external investors in return for handing over a share of your business.

Sources of equity finance for smaller private businesses include:

Venture capitalists - a type of private equity business.

Business angels - private individuals with experience of being entrepreneurs themselves.

Crowdfunding - a number of people each invest, lend or contribute small amounts of money to your business or idea.

Stock market - selling a percentage of your business in the form of shares, which are subsequently traded on the stock market.

Shares and shareholders - shares represent ownership of a company. Individuals buy shares in your company and become one of its owners.

Is equity finance right for your business?

Different forms of equity finance suit different business situations.

It is likely to be most suitable where:

the nature of a project does not suit bank loans or other forms of debt finance

the business will not have enough cash to pay loan interest because it is needed for core activities or funding growth

Questions to ask yourself include:

Are you prepared to give up a share in your business and some control? Investors expect to monitor progress and many seek involvement in significant decisions.

Are you and your key people confident in the business' product/service? Does it have a unique selling point that singles it out?

Do you have the drive to grow the business?

What industry experience and knowledge does your management team have? Is there a variety of skills?

For more information see equity finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-equity-finance

Links
What is crowdfunding?

Overview of crowdfunding and how it can be used to finance a business.
Crowdfunding is where a number of people each invest, lend or contribute small amounts of money to your business or idea. This money is combined to help you reach your funding goal. Each individual that backs your idea will usually receive rewards or financial gain in return.

There are different crowdfunding options to choose from. Each type has different benefits for businesses and investors. You will need to consider which one is right for your business, project or venture:

Reward crowdfunding - investors to contribute to your venture in return for non-financial benefits.

Debt crowdfunding - investors fund your project in exchange for financial interest on their investment.

Equity crowdfunding - people invest money in return for shares, or a small stake in your business, project or venture.

Donation crowdfunding - designed for charities, this type of crowdfunding enables people to donate to a project.

Investors using crowdfunding will often look for:

evidence of a tested idea that has the potential for future growth and development

an idea belonging to a high growth sector (eg technology), or an industry that the funder has a personal interest in

a niche idea that has an established audience in the marketplace

Crowdfunding usually takes place through a website. The platform will manage any online payments, and may often offer services such a video hosting, social networking, and enabling contact with contributors.

There are many crowdfunding platforms, each with different funding models and requirements. It's important to research and choose one that's best for your business, project or venture - see crowdfunding websites.

For more information see crowdfunding.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-crowdfunding

Links
What is venture capital?

Overview of venture capital and how it can be used to finance a new business or grow an existing business.
Venture capital (VC) funding is a form of private equity investment, where a business obtains long-term funding in exchange for a share of its equity.

VC funding is mainly sought by start-ups or new businesses with high growth potential. Companies can also use it to expand, fund management buy-outs or buy-ins, or develop new products.

Private equity (PE) funding is a general term for investments in private companies - usually financed from a fund set up by big institutional investment firms.

Venture capital (VC) companies draw on private equity funds to invest in new businesses with high growth potential, eg technology start-ups. In exchange, they take part of the business' ownership, making a profit when they sell their stake and exit the company.

VC investment criteria

VC's typically invest in businesses with:

a minimum investment need of around £2 million, though smaller regional VC organisations may invest from £250,000

an ambitious but realistic business plan

a product or service that offers a unique selling point or other competitive advantage

a large earning potential and a high return on investment within a specific timeframe, eg five years

sound management expertise - although VCs tend not to get involved in the day-to-day running of the business, they often help with a business' strategy

Before you approach a venture capital (VC) business, you should research what sort of private equity (PE) funding would be best for your business needs. Different types of investment, for example, seed funding, product development and succession funding, are suitable for different stages of business development.

When choosing a VC fund, look for:

funds targeting your business sector

investment criteria

quality of advice and support provided by investors

amount of finance - some PE firms specialise in investments below £100,000

geographical location of PE investors and how near they are to your company

For further information see venture capital.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-venture-capital

Links
Grants and government support for businesses

Grants and government support for people who would like to start a business in Northern Ireland.
A grant is a sum of money given to an individual or business for a specific project or purpose.

A grant usually covers only part of the total costs involved. However, as long as you keep to any conditions attached to the grant, you will not have to repay it or give up shares in your business.

Grants to help with business development are available from a variety of sources, such as the government, local councils and some charitable organisations. These grants may be linked to business activity, geographical areas or a specific industry sector.

The government provides support to businesses both financially, in the form of grants, and through access to expert advice, information and services.

There will be strong competition and the eligibility criteria for grants can be strict. Criteria vary but are likely to include the location, size and industry sector of the business - see grant eligibility.

There are also strict terms and conditions that apply to all grants. If these aren't followed, immediate repayment of the grant can be required. However, generally you do not have to repay grants or interest on them unless you break the conditions.

Currently, the main groups that award grants are:

the UK government

Northern Ireland government

local councils - see find your local council in Northern Ireland

For more information, search the Northern Ireland business support finder.

Read about Invest NI support for business.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/grants-and-government-support-businesses

Links
Raising finance from friends and family

Financing from family and friends to start your business, including things to consider.
It's common for owners of small and start-up businesses to look to relatives and friends for support when they need additional business funding.

This can work well, but often these arrangements are informal and based purely on trust and verbal assurances. Any confusion about the agreement could damage personal relationships, so it is important that both parties are clear about what any investment will involve.

Before you approach a friend or relative for funds to support your business, be clear about what your requirements are:

Loan

If your business needs immediate and relatively short-term funds, a loan may be most appropriate. Decide whether you can afford to pay interest, or whether you are seeking an interest-free loan. If you do pay interest there will be tax implications for both you and the lender.

Investment

If the business needs longer term or permanent funding, you may want to consider giving your investor a share in the business. If you choose this option, think about whether you need an active partner or shareholder.

Advantages and disadvantages of raising finance from friends or family

There are clear benefits to approaching family or friends, rather than conventional sources of funding, for a loan or investment.

Generally, they will be flexible. On a practical level, they may offer loans without security or accept less security than banks. They may also lend funds interest-free or at a low rate.

However, transactions of this nature can be complex. Any misunderstandings about the arrangement can damage relationships.

It's a good idea to approach friends and family in the same way you would a formal lender:

Be clear about your own expectations - specify how long you need the money for.

Detail the repayment level you can afford.

Spell out how many shares or what profit the investor will receive - and when any returns will be paid.

Clarify whether an investor will have any financial liabilities for your business activity.

Draw up a formal written agreement.

For more information see financing from friends and family.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/raising-finance-friends-and-family

Links

Read more about Grants and government support for businesses

Raising finance from friends and family

Business financing options - an overview

In this guide:

Bank finance explained

Overview of the different types of bank finance and support available for businesses.
Several types of bank finance are available, with different packages to suit your needs as your business requirements change.

Short-term finance

Overdrafts are used with business bank accounts and are a flexible source of working capital for short-term needs.

Bridging finance is provided by the bank to businesses to maintain cashflow while awaiting funds from grant cheques, drawdown of commercial mortgages or loan agreements, or other confirmed sources of future income.

Invoice finance includes factoring and invoice discounting. It offers ways to access working capital by unlocking the value of invoices. Interest rates and charges apply on the cash advanced. Invoice discounting allows you to draw on funding secured against approved invoices, while in factoring you can sell invoices to your financier.

Medium-term finance

Term loans have a fixed or variable interest rate and mature over a one- to seven-year period. They are typically used to buy fixed assets such as property or machinery or other purchases of a capital nature.

Asset finance and leasing options allow businesses to spread the ownership associated with buying assets. When you buy assets through leasing finance, the leasing bank buys the equipment for you to use, in exchange for regular payments.

Long-term finance

Commercial mortgages are provided by banks to finance the purchase of business premises. Types of mortgage available include repayment, commercial endowment or pension. You can get advice on providers of commercial mortgages from your bank's business adviser or a commercial mortgage broker.

Fixed asset loans are loans for assets that cannot easily be turned into cash - eg property, plant or machinery. The loans can be fixed for up to ten years. With this type of loan, the asset itself is the collateral and can be repossessed if you do not maintain repayments.

For more information see bank finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/bank-finance-explained

Links
What is equity finance?

Sources of equity finance for businesses, including shareholders, crowdfunding and the stock market.
Equity finance is a way of raising capital from external investors in return for handing over a share of your business.

Sources of equity finance for smaller private businesses include:

Venture capitalists - a type of private equity business.

Business angels - private individuals with experience of being entrepreneurs themselves.

Crowdfunding - a number of people each invest, lend or contribute small amounts of money to your business or idea.

Stock market - selling a percentage of your business in the form of shares, which are subsequently traded on the stock market.

Shares and shareholders - shares represent ownership of a company. Individuals buy shares in your company and become one of its owners.

Is equity finance right for your business?

Different forms of equity finance suit different business situations.

It is likely to be most suitable where:

the nature of a project does not suit bank loans or other forms of debt finance

the business will not have enough cash to pay loan interest because it is needed for core activities or funding growth

Questions to ask yourself include:

Are you prepared to give up a share in your business and some control? Investors expect to monitor progress and many seek involvement in significant decisions.

Are you and your key people confident in the business' product/service? Does it have a unique selling point that singles it out?

Do you have the drive to grow the business?

What industry experience and knowledge does your management team have? Is there a variety of skills?

For more information see equity finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-equity-finance

Links
What is crowdfunding?

Overview of crowdfunding and how it can be used to finance a business.
Crowdfunding is where a number of people each invest, lend or contribute small amounts of money to your business or idea. This money is combined to help you reach your funding goal. Each individual that backs your idea will usually receive rewards or financial gain in return.

There are different crowdfunding options to choose from. Each type has different benefits for businesses and investors. You will need to consider which one is right for your business, project or venture:

Reward crowdfunding - investors to contribute to your venture in return for non-financial benefits.

Debt crowdfunding - investors fund your project in exchange for financial interest on their investment.

Equity crowdfunding - people invest money in return for shares, or a small stake in your business, project or venture.

Donation crowdfunding - designed for charities, this type of crowdfunding enables people to donate to a project.

Investors using crowdfunding will often look for:

evidence of a tested idea that has the potential for future growth and development

an idea belonging to a high growth sector (eg technology), or an industry that the funder has a personal interest in

a niche idea that has an established audience in the marketplace

Crowdfunding usually takes place through a website. The platform will manage any online payments, and may often offer services such a video hosting, social networking, and enabling contact with contributors.

There are many crowdfunding platforms, each with different funding models and requirements. It's important to research and choose one that's best for your business, project or venture - see crowdfunding websites.

For more information see crowdfunding.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-crowdfunding

Links
What is venture capital?

Overview of venture capital and how it can be used to finance a new business or grow an existing business.
Venture capital (VC) funding is a form of private equity investment, where a business obtains long-term funding in exchange for a share of its equity.

VC funding is mainly sought by start-ups or new businesses with high growth potential. Companies can also use it to expand, fund management buy-outs or buy-ins, or develop new products.

Private equity (PE) funding is a general term for investments in private companies - usually financed from a fund set up by big institutional investment firms.

Venture capital (VC) companies draw on private equity funds to invest in new businesses with high growth potential, eg technology start-ups. In exchange, they take part of the business' ownership, making a profit when they sell their stake and exit the company.

VC investment criteria

VC's typically invest in businesses with:

a minimum investment need of around £2 million, though smaller regional VC organisations may invest from £250,000

an ambitious but realistic business plan

a product or service that offers a unique selling point or other competitive advantage

a large earning potential and a high return on investment within a specific timeframe, eg five years

sound management expertise - although VCs tend not to get involved in the day-to-day running of the business, they often help with a business' strategy

Before you approach a venture capital (VC) business, you should research what sort of private equity (PE) funding would be best for your business needs. Different types of investment, for example, seed funding, product development and succession funding, are suitable for different stages of business development.

When choosing a VC fund, look for:

funds targeting your business sector

investment criteria

quality of advice and support provided by investors

amount of finance - some PE firms specialise in investments below £100,000

geographical location of PE investors and how near they are to your company

For further information see venture capital.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-venture-capital

Links
Grants and government support for businesses

Grants and government support for people who would like to start a business in Northern Ireland.
A grant is a sum of money given to an individual or business for a specific project or purpose.

A grant usually covers only part of the total costs involved. However, as long as you keep to any conditions attached to the grant, you will not have to repay it or give up shares in your business.

Grants to help with business development are available from a variety of sources, such as the government, local councils and some charitable organisations. These grants may be linked to business activity, geographical areas or a specific industry sector.

The government provides support to businesses both financially, in the form of grants, and through access to expert advice, information and services.

There will be strong competition and the eligibility criteria for grants can be strict. Criteria vary but are likely to include the location, size and industry sector of the business - see grant eligibility.

There are also strict terms and conditions that apply to all grants. If these aren't followed, immediate repayment of the grant can be required. However, generally you do not have to repay grants or interest on them unless you break the conditions.

Currently, the main groups that award grants are:

the UK government

Northern Ireland government

local councils - see find your local council in Northern Ireland

For more information, search the Northern Ireland business support finder.

Read about Invest NI support for business.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/grants-and-government-support-businesses

Links
Raising finance from friends and family

Financing from family and friends to start your business, including things to consider.
It's common for owners of small and start-up businesses to look to relatives and friends for support when they need additional business funding.

This can work well, but often these arrangements are informal and based purely on trust and verbal assurances. Any confusion about the agreement could damage personal relationships, so it is important that both parties are clear about what any investment will involve.

Before you approach a friend or relative for funds to support your business, be clear about what your requirements are:

Loan

If your business needs immediate and relatively short-term funds, a loan may be most appropriate. Decide whether you can afford to pay interest, or whether you are seeking an interest-free loan. If you do pay interest there will be tax implications for both you and the lender.

Investment

If the business needs longer term or permanent funding, you may want to consider giving your investor a share in the business. If you choose this option, think about whether you need an active partner or shareholder.

Advantages and disadvantages of raising finance from friends or family

There are clear benefits to approaching family or friends, rather than conventional sources of funding, for a loan or investment.

Generally, they will be flexible. On a practical level, they may offer loans without security or accept less security than banks. They may also lend funds interest-free or at a low rate.

However, transactions of this nature can be complex. Any misunderstandings about the arrangement can damage relationships.

It's a good idea to approach friends and family in the same way you would a formal lender:

Be clear about your own expectations - specify how long you need the money for.

Detail the repayment level you can afford.

Spell out how many shares or what profit the investor will receive - and when any returns will be paid.

Clarify whether an investor will have any financial liabilities for your business activity.

Draw up a formal written agreement.

For more information see financing from friends and family.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/raising-finance-friends-and-family

Links

Read more about Raising finance from friends and family

What is venture capital?

Business financing options - an overview

In this guide:

Bank finance explained

Overview of the different types of bank finance and support available for businesses.
Several types of bank finance are available, with different packages to suit your needs as your business requirements change.

Short-term finance

Overdrafts are used with business bank accounts and are a flexible source of working capital for short-term needs.

Bridging finance is provided by the bank to businesses to maintain cashflow while awaiting funds from grant cheques, drawdown of commercial mortgages or loan agreements, or other confirmed sources of future income.

Invoice finance includes factoring and invoice discounting. It offers ways to access working capital by unlocking the value of invoices. Interest rates and charges apply on the cash advanced. Invoice discounting allows you to draw on funding secured against approved invoices, while in factoring you can sell invoices to your financier.

Medium-term finance

Term loans have a fixed or variable interest rate and mature over a one- to seven-year period. They are typically used to buy fixed assets such as property or machinery or other purchases of a capital nature.

Asset finance and leasing options allow businesses to spread the ownership associated with buying assets. When you buy assets through leasing finance, the leasing bank buys the equipment for you to use, in exchange for regular payments.

Long-term finance

Commercial mortgages are provided by banks to finance the purchase of business premises. Types of mortgage available include repayment, commercial endowment or pension. You can get advice on providers of commercial mortgages from your bank's business adviser or a commercial mortgage broker.

Fixed asset loans are loans for assets that cannot easily be turned into cash - eg property, plant or machinery. The loans can be fixed for up to ten years. With this type of loan, the asset itself is the collateral and can be repossessed if you do not maintain repayments.

For more information see bank finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/bank-finance-explained

Links
What is equity finance?

Sources of equity finance for businesses, including shareholders, crowdfunding and the stock market.
Equity finance is a way of raising capital from external investors in return for handing over a share of your business.

Sources of equity finance for smaller private businesses include:

Venture capitalists - a type of private equity business.

Business angels - private individuals with experience of being entrepreneurs themselves.

Crowdfunding - a number of people each invest, lend or contribute small amounts of money to your business or idea.

Stock market - selling a percentage of your business in the form of shares, which are subsequently traded on the stock market.

Shares and shareholders - shares represent ownership of a company. Individuals buy shares in your company and become one of its owners.

Is equity finance right for your business?

Different forms of equity finance suit different business situations.

It is likely to be most suitable where:

the nature of a project does not suit bank loans or other forms of debt finance

the business will not have enough cash to pay loan interest because it is needed for core activities or funding growth

Questions to ask yourself include:

Are you prepared to give up a share in your business and some control? Investors expect to monitor progress and many seek involvement in significant decisions.

Are you and your key people confident in the business' product/service? Does it have a unique selling point that singles it out?

Do you have the drive to grow the business?

What industry experience and knowledge does your management team have? Is there a variety of skills?

For more information see equity finance.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-equity-finance

Links
What is crowdfunding?

Overview of crowdfunding and how it can be used to finance a business.
Crowdfunding is where a number of people each invest, lend or contribute small amounts of money to your business or idea. This money is combined to help you reach your funding goal. Each individual that backs your idea will usually receive rewards or financial gain in return.

There are different crowdfunding options to choose from. Each type has different benefits for businesses and investors. You will need to consider which one is right for your business, project or venture:

Reward crowdfunding - investors to contribute to your venture in return for non-financial benefits.

Debt crowdfunding - investors fund your project in exchange for financial interest on their investment.

Equity crowdfunding - people invest money in return for shares, or a small stake in your business, project or venture.

Donation crowdfunding - designed for charities, this type of crowdfunding enables people to donate to a project.

Investors using crowdfunding will often look for:

evidence of a tested idea that has the potential for future growth and development

an idea belonging to a high growth sector (eg technology), or an industry that the funder has a personal interest in

a niche idea that has an established audience in the marketplace

Crowdfunding usually takes place through a website. The platform will manage any online payments, and may often offer services such a video hosting, social networking, and enabling contact with contributors.

There are many crowdfunding platforms, each with different funding models and requirements. It's important to research and choose one that's best for your business, project or venture - see crowdfunding websites.

For more information see crowdfunding.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-crowdfunding

Links
What is venture capital?

Overview of venture capital and how it can be used to finance a new business or grow an existing business.
Venture capital (VC) funding is a form of private equity investment, where a business obtains long-term funding in exchange for a share of its equity.

VC funding is mainly sought by start-ups or new businesses with high growth potential. Companies can also use it to expand, fund management buy-outs or buy-ins, or develop new products.

Private equity (PE) funding is a general term for investments in private companies - usually financed from a fund set up by big institutional investment firms.

Venture capital (VC) companies draw on private equity funds to invest in new businesses with high growth potential, eg technology start-ups. In exchange, they take part of the business' ownership, making a profit when they sell their stake and exit the company.

VC investment criteria

VC's typically invest in businesses with:

a minimum investment need of around £2 million, though smaller regional VC organisations may invest from £250,000

an ambitious but realistic business plan

a product or service that offers a unique selling point or other competitive advantage

a large earning potential and a high return on investment within a specific timeframe, eg five years

sound management expertise - although VCs tend not to get involved in the day-to-day running of the business, they often help with a business' strategy

Before you approach a venture capital (VC) business, you should research what sort of private equity (PE) funding would be best for your business needs. Different types of investment, for example, seed funding, product development and succession funding, are suitable for different stages of business development.

When choosing a VC fund, look for:

funds targeting your business sector

investment criteria

quality of advice and support provided by investors

amount of finance - some PE firms specialise in investments below £100,000

geographical location of PE investors and how near they are to your company

For further information see venture capital.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/what-venture-capital

Links
Grants and government support for businesses

Grants and government support for people who would like to start a business in Northern Ireland.
A grant is a sum of money given to an individual or business for a specific project or purpose.

A grant usually covers only part of the total costs involved. However, as long as you keep to any conditions attached to the grant, you will not have to repay it or give up shares in your business.

Grants to help with business development are available from a variety of sources, such as the government, local councils and some charitable organisations. These grants may be linked to business activity, geographical areas or a specific industry sector.

The government provides support to businesses both financially, in the form of grants, and through access to expert advice, information and services.

There will be strong competition and the eligibility criteria for grants can be strict. Criteria vary but are likely to include the location, size and industry sector of the business - see grant eligibility.

There are also strict terms and conditions that apply to all grants. If these aren't followed, immediate repayment of the grant can be required. However, generally you do not have to repay grants or interest on them unless you break the conditions.

Currently, the main groups that award grants are:

the UK government

Northern Ireland government

local councils - see find your local council in Northern Ireland

For more information, search the Northern Ireland business support finder.

Read about Invest NI support for business.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
Also on this site

Choose the right finance when starting a business

Content category

Finance
Source URL
/content/grants-and-government-support-businesses

Links
Raising finance from friends and family

Financing from family and friends to start your business, including things to consider.
It's common for owners of small and start-up businesses to look to relatives and friends for support when they need additional business funding.

This can work well, but often these arrangements are informal and based purely on trust and verbal assurances. Any confusion about the agreement could damage personal relationships, so it is important that both parties are clear about what any investment will involve.

Before you approach a friend or relative for funds to support your business, be clear about what your requirements are:

Loan

If your business needs immediate and relatively short-term funds, a loan may be most appropriate. Decide whether you can afford to pay interest, or whether you are seeking an interest-free loan. If you do pay interest there will be tax implications for both you and the lender.

Investment

If the business needs longer term or permanent funding, you may want to consider giving your investor a share in the business. If you choose this option, think about whether you need an active partner or shareholder.

Advantages and disadvantages of raising finance from friends or family

There are clear benefits to approaching family or friends, rather than conventional sources of funding, for a loan or investment.

Generally, they will be flexible. On a practical level, they may offer loans without security or accept less security than banks. They may also lend funds interest-free or at a low rate.

However, transactions of this nature can be complex. Any misunderstandings about the arrangement can damage relationships.

It's a good idea to approach friends and family in the same way you would a formal lender:

Be clear about your own expectations - specify how long you need the money for.

Detail the repayment level you can afford.

Spell out how many shares or what profit the investor will receive - and when any returns will be paid.

Clarify whether an investor will have any financial liabilities for your business activity.

Draw up a formal written agreement.

For more information see financing from friends and family.

Watch this video tutorial which outlines the common sources of funding for businesses, including bank finance, equity finance and government grants.
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