Depending on your financial needs, your start-up will need more or less funding. Here are five possibilities to consider:
1/ The bank.
Most banks offer loans to start-ups. You will have to submit your business and financial plan. A sound financial plan is crucial if you are looking for external funding. Presenting a robust strategy shows that you have been researching, preparing and that you are serious. Keep in mind that you are asking 'a stranger' for money. And even if you know Jenny at the bank, it is presumably the back-office that will look into your loan request. Being a starter, you might not have an extensive track record. The business plan is your only supporting document.
Nowadays, a starter receiving 100% of financing is not realistic, even with a strong business plan. The bank will expect you to have a part of the money (saved up). How much? Depends on the type of business and the bank. For example, you want to start a coffee bar. You have the funds available for all start-up related costs and the rent of the building for six months. You ask the bank for a loan to purchase furniture and two coffee machines.
Nowadays, many banks are reluctant to give loans to starters. Remember that the bank's first concern is not to help you. A bank loans you money and expects to get more money back: loan plus interest. If they are not sure you are going to make it, they'll turn you down. Also, take into account that the bank doesn't need you. Banks have billions under management, so another 50'000$ loan means nothing to them. That is the harsh reality. Better work on that business plan!
So what are the options when the bank turns you down?
2/ Family and friends might want to help you out. However, in my opinion, that is a slippery slope. You'd better be extremely sure you are going to succeed! Are you prepared to tell your uncle or your fishing buddy of twenty years, that his money is gone? Think about it! But if you do consider asking relatives to fund your project, present them with the same well-prepared documents as you would do for a bank. Get professional. Present it to them as a business opportunity, not as a favor to a friend or a brother.
3/ Crowdfunding. Here you are asking many strangers for smaller amounts of money. The same goes here. You' ll need a rock-solid business plan.
4/ Angel investors might loan you money. Again, the business plan is what needs to convince them. However, angel investors are usually a costly way to attract funds, especially when they ask for a big chunk of equity in your business. Be careful here and think this through very carefully! Suppose you need funds today. An angel investor gives you the money for 50% of equity in your company. This proposal might be attractive today as you have no money, and your company does not perform yet. But what in ten years, when you make a million per year? Will you still be ok with that 50%?
5/ The government. Depending on your country and business, some business sectors get support from the government in some form or shape. Some examples: the government leasing empty buildings for 1$ per month. Selling land for little prices to attract new business. Tax exemptions for x amount of years. First employee benefits or tax benefits for hiring a 55+ employee. Check it out. You might be pleasantly surprised.
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10 about the author; Erik Victor
1.
is a serial entrepreneur and started his career in Engineering
2.
currently a majority shareholder in corporations in the fields of
Industrial Real Estate, Wealth Management & Investment funds, and
International Tax Planning
3. has a passion for the dynamics of
young businesses and actively endorses several start-ups
4. is an
engaged member of several think-tanks and an international conference
speaker
5. has a business footprint in six countries
6. speaks
five languages
7. personal life - resides in Europe
8. Erik
(48) is known as a discrete and private person, a family man
9.
loves to spend his limited holidays in the mountains or at sea on his
yacht
10. Erik has no social media accounts
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