Financing Your Start-Up

Businesses do not come for free.  Even the smallest ones would need a significant sum of money to build themselves. As a small business owner, you need capital to be able to finance your company, and this requirement grows as your company grows.

Here, we’ll look at some business financing solutions to help you get your dream off the ground.

Banks and traditional business lenders

Going to a traditional lender, such as a bank or a business lender, is one of the most popular ways to raise capital for a new business. If you want to take this path, you’ll need to be ready to show them your business plans, a straightforward and concise strategy and financial projection, and a good credit score. This could make it difficult for any entrepreneurs to get the funding they need.

Peer to peer lending

Another way to eventually finance your startup is to turn to your peers.
There are several approaches to this but proceed with caution. It can be done informally, with a friend lending money to another friend to help them start a company. This, however, can put even the best of partnerships to the test, and if things get nasty in the future, there may be a problem.

Looking at a peer to peer lending network is the perfect way to do this. This has the added benefit of lower interest rates, and your credit score, which is important when applying for a traditional bank loan, might not be as important. However, if you intend to do something, make sure the contracts are in order and that everyone is in agreement with the regulations.

Angel investors

We’re talking about the kind of angel investor you would see on Dragons’ Den. They are the individuals who will provide you with the majority of the assistance you need to get your business off the ground. However, keep in mind that these opportunities do not show up very often and are not free. 

An angel investor would want equity in your business or a cut of your profits once you start making them in return for investing in it. If your business is successful, this could amount to a significant sum of money, so carefully consider how much of your company you are prepared to give away.

An alternative to an angel investor is a capital venture investor. Rather than individuals, as angel investors, capital venture usually involves a whole firm. Professional investors make up venture capital companies, and their funds come from a number of places: businesses and individuals, private and public pension funds, and foundations. They are more likely to get involved with established firms, but some are starting to look at startups. Suraj Rajwani looks at the difference between US-based and international venture capitalism.

Do it yourself

If none of the above options are available, the only other choice is to do it yourself. You may be fortunate enough to have recieved a windfall or been left a large inheritance, but if not, you are unlikely to have the funds to pay out in full. Many potential entrepreneurs take the risk of remortgaging their home and using the equity to start a company or sell their high-value assets.

 

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