10 Ways to finance a new business
Know the primary sources of business financing and how to choose the best one to start your business.
You have chosen your business idea, and you have clear cox`mmercial, technical, economic and financial aspects of your entrepreneurship project … it’s time to take a big step: Get the money to start. Choosing the right funding sources for a startup is a crucial aspect that will define much of the success of the business.
There are different ways to get the money for the starting of a business, and you cannot say that one is better than another, just say that each one is different and you must choose the one that fits the characteristics of your project.
Ways to finance a new business or business
- The cost of capital
- The repayment or payment scheme (term, form, etc.)
- The amount of money you can get from a particular source.
Well, now let’s get to know the different sources of money you can find. Make a list of those you can access and then choose the most convenient.
Primary sources of funding for a business project
Capital and own resources
Start by looking in your pocket. The financing with own resources in the form of investment most used by the majority of the small entrepreneurs (according to the magazine Entrepreneur).
It is possible that the money with which it counts is insufficient. However, it is of great help that makes the most of what resource it possesses. Any table, computer or space you can use will serve to reduce the initial investment.
He also remembers that entrepreneurs like Steve Jobs started in the garage of their home or in a bedroom, and were able to sell their most precious belongings, such as cars, to complete the resources needed to start their company.
The 3 “F” (Family, Friends, and Fools)
The next place to look for money is your closest circle: “family, friends, and fools.”
The big problem with this source of funding is that it can usually cause conflicts with those who agree to provide you with capital; however, it is effortless (relatively) to access it, and you can reach good deals with them.
If you have clear all the resources you need and are well organizing. This option can be a great help to start a small business.
Corporate loans and bank loans
The two options above are perhaps the easiest to access and may be the best for a small venture, but if your project requires higher investments, you will inevitably have to turn to the financial markets.
Financial institutions are a great option, as long as you are willing to know some basic concepts about finance. It is essential to learn about interest rates, ROI and other indicators that will serve as a benchmark to evaluate the options that banks offer.
Remember not to go to a single bank, look at the cost of capital and the benefits provided by several entities and compare. Oh and always read the loan document very well and if possible consult with a financial expert because the fine print and the technical terms are often confusing.
Government support programs
Each government has its own agendas to support business culture, offering training and financial resources for the economic development of the region. These tasks are carried out through institutions responsible for evaluating business and productive projects. To select those that meet the necessary requirements to access the aid.
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.
The significant disadvantage of this option is that because it is public entities, it can take you quite some time to get your support. Also, the paperwork is excessive.
Business Angels and Venture Investors
So far we have seen options where the source of investment does not seek direct participation in the firm. But we come to one of the best options when you have a large project whose initial investment is relatively large.
Angels Investors are individuals possessing a substantial capital and are looking for investment opportunities to put to give their money.
Convincing an investor to trust your project is not an easy task; however, when you achieve it you get not only to invest your money, but also to put your experience to develop your project successfully.
A Business Angel will want shareholding in the business, but remember to structure the capital of your new company very well. Otherwise, you could fall into the mistake of giving too much power to third parties losing control of your own business.
Another drawback is that, generally, an investor does not have the same passion as you for the firm, he is only interesting in seeing his money multiple and could put high pressure on you to demand results.
Get a sponsor
Starting a project through a promoter means that the entrepreneur is financing through a third party relating to the activity.
There are companies with Social Responsibility programs orient to the business development of the region where they operate. For example, Carrefour supports small producers through the purchase and marketing of their products. In this case, the entrepreneur has a client before starting up his company.
Having the backing of a large company is an invaluable help when starting a business, it is only a matter of presenting a good project to a brand, showing you the advantages that would support your business. For this option must be established very clearly the conditions of the relationship. Otherwise, dependence on the sponsor can be lethal.
Financing with suppliers
This form of funding does not work for any business. It is more useful for businesses engage in marketing activities.
Suppose you are going to start a clothing marketing business. You make a list of suppliers and negotiate with them to give you 90 days for the payment of the merchandise. These 90 days are the term you have to sell and pay the debt providers.
If you manage to establish a good business model, you will be able to work with the capital of your suppliers. And you will have no problem to maintain the level of inventory adequate to satisfy the demand of the business.
If you choose this source of funding, you will be instrumental in knowing and implement Just in Time to lower your costs and make the most of the suppliers.
Issue of shares
The stock market is a great source of money to start big business projects.
Each country (or most) has its own stock exchange; there they meet entrepreneurs in search of money to start businesses and investors with capital to finance projects.
To access these funds you must comply with some legal requirements, for example, not any type of commercial company can issue shares, so it is advisable to consult the trade legislation of your country. I also recommend you check out this About Action Concepts Guide.
Start without capital
Did you know that you can start a company without capital? That’s right, it’s a business model that works for businesses with 3 characteristics:
- Minimum investment is required in fixed assets and in inventory of goods
- With few operational losses (or are minimize)
- The accounts receivable are as short as possible, and the accounts payable are as long as possible.
Some businesses of this type are for example Internet-based, service companies whose primary asset is the know-how, commercial enterprises … What business do you think of?
The “Crowdfunding” means crowdfunding, but also called crowd funding. It is a collective cooperation to obtain money or other resources to finance efforts and initiatives of individuals, causes or organizations.
For collective financing to be possible, there must be three parts: an entrepreneur with an idea or project. A group of investors interested in supporting different initiatives and a Crowdfunding platform that allows the connection between investors and entrepreneurs.
Through Crowdfunding, different and fascinating entrepreneurship projects are currently financed.
Do you know any other source of business financing that you want to comment on?
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