When it comes to raising funding, it can be difficult to know where to start.

Asking some straightforward questions usually helps: "What does their business do? What is the funding for? And what stage is it at?”

It’s worth considering if your business might be eligible for a grant.

For example, if you’re planning to develop a new product or process, a SMART: SCOTLAND grant from Scottish Enterprise could help meet part of the cost of a feasibility study or building a prototype.

Or if you plan to make a capital investment that will create permanent jobs, you may be eligible for a Regional Selective Assistance grant. This is available in certain “assisted areas” and the level of support depends on the size of your business.

There is always healthy competition for grants so be prepared to spend some time on any application.

There are also hybrid awards, such as Scottish EDGE, which is part-grant and part-loan (though hurry if you’re applying for that because the latest round closes on 8 March 2017)!

You might borrow from a traditional source: friends, family or a bank. Or some other kind of commercial lender, like one of the emerging peer-to-peer lenders.

The key points to consider are the same regardless of the lender: how much are you borrowing? Can you service the debt ie. Keep up the repayments of capital and interest. For how long? What is the interest rate and is it fixed or variable? Is the loan to be secured? What fees and charges will be payable?

Lenders will normally ask for information about your business e.g. copies of your business plan and accounts. They obviously prefer to lend to businesses that have revenue and assets.

You may be asked to give a personal guarantee or some form of security in case the business can’t repay the loan. Be sure to think about this carefully and get legal advice. If the business defaults on the loan, you stand to lose your own property and assets. If the lender insists on a personal guarantee or security, there may still be some scope for negotiation e.g. capping your liability under a guarantee.

If you’re setting up a business, or have a business that has traded for less than 12 months, you may be eligible for the Start Up Loans scheme. This is a UK wide initiative that makes unsecured loans of between £500 £25,000. Interest is fixed at 6% per annum and the loans can be repaid over up to 5 years. It is delivered by a number of partners that also offer mentoring.

Equity funding is raising funds by selling shares in your company. Are you willing to give up part of your company in return for investment? Your business will need to be set up as a company in order to be able to issue shares to investors.

Early stage equity funding typically comes from friends, family and angel investors.

Scotland is fortunate to have a number of active angel investment syndicates e.g. Equity Gap, Par Equity, Gabriel, TRI Capital, Highland Venture Capital, EOS and Archangel. Angels are experienced investors who come together to invest in promising companies. Scottish Enterprise typically matches their investments.

A number of venture capital firms are also active in Scotland – they invest more than angel investors but at a later stage.

Ken’s advice on raising equity funding is “If you go to ‘commercial investors’ and not friends and family, make sure that you have an exit strategy. Your investors are investing because they hope the company will be snapped up, so tell them how you plan to make that happen. And be optimistic but realistic when valuing the company!”

Ken Long is partner at Scottish independent law firm Wright, Johnston & Mackenzie LLP.