A business can not start from 0 without anything, you need capital to invest and acquire all the material, tools, space, employees,… You need so your StartUp can live at least in the short term.
But we do not always have the capital ourselves to get to everything, and that translates into the need for third-party financing. As we have lived this need in our flesh since TalentFY, we know how important it is to have a financing during the first months or years of life of a StartUp. For this reason, in today’s article we explain the different financing options that exist today and that are also the most used by entrepreneurs.
Before resorting to any external means of financing, we can opt, if we have the alternative, to invest our own savings, including where appropriate, the money of capitalisation of the unemployment benefit. This will always be the most flexible and cost-effective option. In addition to saving costs, you can distribute capital in the way you consider most timely and beneficial for your business, but you should be aware that you will be fully assuming the risk of the project.
The 3F’s: Family, Friends and Fools
If you do not have enough savings, but you firmly trust in the profitability and viability of your project, you can always use the help of your closest circle contacts. In general, they are accessible people with whom you already have a previous contact and it will not be difficult to make them see the profitability of your project. In addition, compared to other external sources of financing, with this you will gain flexibility, avoiding paying interest and adapting the repayment of the borrowed to the possibilities that will be generated by your business.
This option is one of the most sought after by entrepreneurs in recent times. TheBusiness Angels are private investors who usually bring money or experience and contacts in exchange for a return. They are looking for startups with a wide potential for growth that will allow them to recover their investment as quickly as possible. Besides, The capital injections we can get in this way are considerable, and they will never be interest-free.
Many times these investors become part of the company’s shareholding in exchange for their contribution, you will have to negotiate what share you are willing to give up. In addition, you should consider that you may lose some influence on the effective control of your startup.
Another option is to apply for public grants and subsidies. Funding in these cases will depend greatly on the type of project and the political and economic situation. You will often have to face a cumbersome bureaucracy, which will also consume some of your valuable time.
Crowdfunding consists of the contribution of many people or “patrons” with resources which, through an online platform, support certain entrepreneurial projects. There is usually room for any project that offers an attractive reward.
Bank loans are an important channel of financing, but we recommend you to resort to another type of financing before asking for a bank loan. The main reason for our recommendation is that the costs of this type of funding can delay the viability of your project. The conditions of the bank loan will depend on many different factors: how is the bank that grants it, the stage in which your project is when using this route, the viability of this, etc.
And you: Do you know the different types of financing we have explained? Have you ever gone to one of them?
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