How To Finance A Startup Business
80% of newly created businesses do not survive the first two years of life due to lack of financing, among other causes. Although depending on the type of business, the costs can be higher or lower; the truth is that undertaking a new business always requires certain costs such as materials, employees, premises, equipment, manufacturing, and transport.
Getting enough resources to start a business or make it grow in the first year of operations is not impossible. Entrepreneurs can access various sources of financing, some of which is non-refundable, and others with the obligation to pay interest or give shares of the company in exchange.
These are a few options that will help you fulfill your dream of undertaking or complementing the resources you need to grow your business. Here are some of them:
An excellent way to start without having to ask for money from anyone is to save enough money to finance your business. Before spending money on your business idea, you need to think about whether you need it or not to live. If you take time to save, you can also make a much more detailed and defined business plan before starting your business.
Find A Grant
Of course, you can also finance your business thanks to the grants offered by different public bodies. There are a number of grants that are available to SMEs and freelancers to propel projects. Each government has its own programs to support the business culture, and offer training and resources for the economic development of the region. Most of these programs do not even charge interest on the capital, or simply do not charge the borrowed money if the project meets certain requirements related to the offer of employment in the locality or contribution to the development of the region.
This type of financing is somewhat complicated to access since banks usually grant loans only to businesses that are underway and with specific experience in the market, and not to businesses that have just started. However, accessing a bank loan to start a project is not impossible if you have a good credit reputation or good commercial references.
Use A Credit Card
One way is to apply for credit cards from other financial institutions that are oriented to support new projects, or that can help those with bad credit. The only disadvantage is that, unlike traditional banks, in these entities, the amount borrowed is often small, and the interest rate is sometimes higher.
Have A Business Partner
Another alternative that facilitates the financing of small businesses is the participation of partners. The normal thing is to have a family member or friend, although, at the time of choosing a partner, the important thing is that it is someone you can trust. Besides helping you with financing, a partner can be key when promoting the company, in the creation of the product, and the administration. Of course, if you want to be the sole owner, the most appropriate thing is that your partner should only be a financier.
Use A Business Subscription Model
Another method of finance to consider is a subscription model, where the customer agrees to buy a service or product that will be delivered repeatedly over a certain period of time. This method of financing was widely used in magazines and cultural goods, but in recent times it is also being applied in other areas.
This form of financing has become very fashionable in recent times. It involves raising money through crowdfunding. One of the great advantages of this method is that the money loaned by third parties should not be returned since these will become customers. Today there are many crowdfunding platforms all over the internet.
Ask From Friends And Family
If you do not have enough capital, a good alternative to start is to borrow money from family or friends, who will probably accept if they are aware of your ability and responsibility. Make sure you sign a contract that specifies if it is a loan or an investment and also be in constant communication with them. You also must tell them if there is a financial risk that could cause the loss of some or all of your funds.
The advantage of borrowing from your loved ones is that you are usually not required to pay interest, or have to return the money as soon as possible or on a deadline. The disadvantage is that you risk a deterioration of your relationship if you do not return the money.
The basis of many SMEs is usually the family’s capital. The only problem is that this capital has its limit, sometimes it is not enough for what is intended.
Investors Or Business Angels
Finding business angels and venture capital investors can finance completely or partially and receive a percentage of the profits according to what was contributed.
These people have a large amount of capital that they use to finance projects that they consider potentially profitable because they are looking for a high return on investment. They can take more risks than a bank, and in addition to money, they can bring contacts and experience in the sector you operate.
A business angel will want equity participation, so you should structure the capital of your new project very well. Otherwise, you could fall into the error of giving too much power to third parties. A disadvantage is having to always pay a part of the profits to someone who invested initially, and who then does not do much to grow the business.
The method consists of the rental of computer equipment, furniture, machinery, automotive fleets, which will allow the company to start its activities without making large initial investments. The advantage of financial leasing is that it will allow SMEs to grow without limitations such as the lack of inputs. Also, in some cases the employer can buy this equipment and the fees paid would be taken into account. The disadvantage is that you do not own the machinery or equipment, so you can not consider them within your assets.