How to finance your business? Businesses do not always need large-scale financing; sometimes a loan or contributions from the entrepreneur and his family are enough.
However, in the case of technological projects or those with a global impact, large initial investments are necessary in order to achieve faster growth.
In any case, below you will find some alternatives suggested by Jonatan Kon Oppel , Investment Fund Analyst at ICBC Investment .
How to Finance your Business?
1. Apply the triple FFF to locate financing
While a business is still just an idea, and we cannot guarantee the return of the money, there are only 3 groups of people who can lend us money at no or low cost, or even invest in our business.
In the startup world they are known as FFF, which stands for Friends, Family and Fools .
Although this may be an economical form of financing, the risks involved must be considered. When personal relationships may be affected, it is necessary to try to avoid conflicts by clarifying from the beginning the risks that the investor is assuming, or the way in which you will return the money if your venture does not go well.
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2. Microcredits or seed capital loans
If you have asked yourself the question: How to finance your business? A good alternative is microcredits granted by the government, various NGOs, and some banks. These are low-value loans to help entrepreneurs at the start or to invest in equipment or tools that increase their productivity.
They have the advantage of not needing real collateral, but they are subject to interest. Most of the time these interest rates are subsidized by some government entity and are low, but in other cases the risk assumed by the institution that grants the credit is reflected in very high interest rates.
3. Consignment - a form of financing
We can draw up a consignment contract when our business involves selling third-party products. This contract will establish, by prior agreement with the supplier, the purchase price of the products, the possibility of returning those that were not sold, as well as the date on which those that we manage to sell will be paid.
4. Crowdfunding - Finding funding on the web
Another way to answer the question of how to finance your business is to use this form of investment that requires the participation of many people, but not only in the form of loans or shares in the company, but also as a donation when a profit is made.
Typically, the benefit offered is the possibility of being one of the first to receive a product or service, a discount, a thank you letter, among others.
This type of financing was the main one for technological products but is currently used to finance any type of venture or project to be developed. Some of the best-known platforms to access this form of financing or investment are:
✅ Social
✅ Crowding
✅ Crowdium
✅ Idea.me
✅ Kiva
✅ Throw us
5. Angel investors - Capital from a third party
Angel investors are those who invest in companies at an early stage.
They are called “angels” because they invest in very high-risk ventures.
Typically, their strategy is to invest small amounts in many companies at the same time, so that they can offset any losses they may have in some companies with the success of their investment in others.
Some financial angels are as follows:
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6. Strategic clients
Although it is not well known as a form of financing, many of the large companies we know today based their growth on investing only in services or products already sold, sometimes paying in advance. John Mullins, in the book “The Customer Funded Business” , presents 5 different ways that some entrepreneurs used to achieve this.
7. Incubators or accelerators
These organizations help finance your initial expenses, and also provide many of the services that an entrepreneur might need at the beginning, such as mentoring, physical space, tools, experience and contacts.
You can find a lot of information about these acceleration programs on Fundacity 's website. Here are some other well-known incubators:
✅ Scalabl
✅ Wayra
✅ Incutex
✅ Emprear
✅ Incubate
✅ Socialab
8. Bartering
It consists mainly of an exchange of services, where you provide a few hours of work to a company and in exchange you use its facilities or tools.
9. Government
Many national, state, and municipal governments usually have various programs to support entrepreneurs and SMEs, classified by the different productive sectors they wish to promote in order to finance the initial stage of their ventures.
Research the options offered by different government entities in your country and choose the one that best suits your business.
10. Equity capital
If you have already tested the hypotheses you proposed before starting your business, and you are able to estimate the results of your investment with greater certainty, it is time to use some savings that we were planning to allocate to an expense.
Because as they say, “a car or a vacation will not buy you a company, but a company can one day buy you several cars or vacations.”
Source: Column by Jonatan Kon Oppel
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