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Rajeet Singh
Financing Your Business
So you have your business idea, your business plan (link this to first blog post), now you need the
means to get it off the ground.
Ultimately the question of how to finance your business depends on your circumstances and what
kind of business you’re starting.
There are quite a few different roads available, some can be simultaneously walked down whilst
others may give you all the capital you require plus a bit extra. Let’s take a look at some of these
avenues.
Bootstrapping
From the old saying ‘pull up your bootstraps’, bootstrapping means to finance your business
yourself, without any outside help.
This options viability depends on your personal finances and the type of venture you’re starting. If
you have a substantial amount saved and your business doesn’t call for a huge amount of start-up
capital and initial running cost, it’s entirely possible to commence using just your own funds.
Bootstrapping is an effective financing method if you can afford it - you won’t owe anyone anything
and you’ll answer only to yourself. It is important, however, to choose wisely and take into account
possible worst case scenarios.
What happens if the business fails, can you afford to lose that much capital? How long can you
afford to finance the business yourself without any sales coming in?
As the old saying goes, ‘don’t put all of your eggs in one basket’. If you’re going to bootstrap, be sure
to use a sensible portion of your finances, not all of them, and always take into account living and
personal costs.
Friends and Family
Seeking funds from friends and family is probably one of the first ports of call and can be an effective
form of financing.
Friends and family know you personally, so they’re more likely to lend to you and far less likely to
ask for interest on return, plus they’ll be more flexible on repayment timing. However, this method
can be somewhat treacherous.
Often, family relations and good friends don’t make the best business connections. If the business
doesn’t go so well, will you be able to pay them back? Are you willing to potentially sour a
relationship for funding? If you’re asked for a slice of your business in exchange, are you willing to let
that person have a say in your business, or pay out the same percentage in equity?
Bank Loans
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It’s only logical to seek a bank loan when looking for finance. There are government schemes which
help provide bank loans to start-up enterprises, depending on which country you live in – a simple
web search will provide the information needed.
Bank loans, of course, come with interest added onto the repayments. It’s worth shopping around
for the best rates and perks, as some come with added extra’s like accounting software packages
and web building tools.
You’ll need a clear business plan and an idea of where your revenue will come from before a bank
will even consider you, and many will require assets to guarantee the loan.
Angel Investors
These are private individuals who have often succeeded in business themselves and are now looking
to invest their own money.
An angel investor will want a share of equity in return for their investment and will often offer
business coaching and mentoring, in part to impart their wisdom, in part to speed up return on
investment.
It’s difficult to come up with hard rules on this type of financing – each investor will have their own
preference of industry and their own business coaching style.
If you’re able to find one who takes a shine to your idea or you as a person, then not only could you
get funding, but you’ll also likely gain a valuable asset to the business.
Venture Capitalists
VC’s are in business to make large amounts of money in relatively short time frames, so they go for
big projects (we’re talking millions). It’s unlikely they’ll be interested in early-days and pre-revenue
start-ups.
If you’ve got big plans and a hugely scalable idea though, it’s worth trying to meet a few VC’s. If you
get one, their expertise, market contacts and sheer amount of cash could skyrocket your venture to
dizzying heights – just make sure you have a viable exit strategy before you get into bed with a VC.
Credit Cards
Perhaps not the best method, but financing on credit cards can work if you’re sure that you’ll be
making profit soon enough to cover the monthly repayments.
It’s best to shop around for the lowest rates, but be careful when it comes to spending on plastic, if
you don’t strictly keep up with repayments the monthly charges can add up very quickly.
If this method must be used, it’s best in the beginning when you require small amounts of money for
short periods, it’s by no means a viable long term option.
Grants
Governments provide grants for a whole range of business ventures. Science, the arts and
engineering are just some industries where grants are available.
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It’s definitely worth searching online for what grants may be available to you. Application processes
are usually quite long and you’ll have to jump through a few hoops, but securing a government grant
can give your business serious credibility in the market place. A quick web search for ‘business
grants’ will give you an idea of what could be available to you.
Crowdfunding
Perhaps the newest and most fashionable form of financing. Crowdfunding is where large amounts
of people each give you small amounts of money which add up to (hopefully) large amounts of
finance.
In return you’ll have to give them something, of course, depending on the amount a person gives.
Small contributions could get them a mention on your site or your marketing, for larger pledges you
could give out freebies, first chances to sample your product, or even shares and equity.
Crowdfunding success lies largely in how well you can connect to the general masses. If your
business strikes a chord with people, for example something environmentally friendly or altruistic, or
if you’re looking to provide real technological advancement for example, crowdfunding could do
quite well for you.
The second important thing about reaching people through this method is delivery. People must be
able to very obviously see your unique value proposition or be able to relate to you in some way.
Have a look a crowdfunding through sites like crowdcube.com and kickstarter.com.
Rajeet Singh is a Writer and Entrepreneur, find his writings and follow him on facebook here
Rajeet Singh
Rajeet Singh
Rajeet Singh