Where to get start-up capital for business? This is the most common question among aspiring entrepreneurs.
Financing a business is the first major problem that a novice businessman faces.
So, a very simple question: where to get start-up capital? There are several options:
1) Take money from a friend or relatives
Friends and family won’t let you down. They won’t ask for percentages. Even if you delay the repayment of the debt, they will not run after you with irons and soldering irons. It is a fact.
Therefore, often aspiring entrepreneurs often resort to this method of raising money to start a business.
In addition to the obvious advantages, the way to take money from relatives to start a business has a number of disadvantages.
Therefore, assuming the obligation to return the money, and the money to relatives must be returned, carefully weigh the pros and cons. How to do this, and what «pitfalls» you can meet when borrowing money from friends can be read here.
2) Get a loan from a bank
— This option of attracting money comes to mind most often. Where to get start-up capital, if not in a bank?
Here it is necessary to take into account one nuance. The bank will give your business a loan only 3-6 months after registration. Thus, the bank is insured against «bad» debts and delays. Giving money to a project that has not yet begun is a risky business.
Therefore, the only way to get a loan for a business before the start is to issue it to an individual. Most likely it will be a consumer loan.
Therefore, the amount will be relatively small, and the interest relatively high.
As of January 2015, the interest rate on such a loan is above 35% per annum. It is better to take such a loan as additional financing.
You can read more about bank loans at the start of a business here.
3) Borrow from individuals
— “Well, well,” the novice entrepreneur will say, “it will be expensive in the bank. Then, is it better to take a loan from individuals? Or microcredit like «money fast», «money instantly» and similar firms?
Maybe. Taking a loan from private individuals is even easier than getting a consumer loan from a bank. But the percentages will be even higher.
Do not count on an interest rate below 50% per annum.
More often you will encounter a situation where the interest rate will be even higher. You can read about what conditions are offered by microfinance organizations like «smart money» in this article.
4) Attract a partner
is a very interesting and viable option for raising start-up capital. If a loan is paid money that must be repaid, and even pay interest on them, then the partner gives money in order to later claim a part of the profit.
His contribution to the business will return, as well as yours, in the form of profit when the business begins to generate income, and not in the form of interest on the use of money.
Another plus in the option of attracting a partner is that he can complement you.
As a rule, partners converge in such a way that one complements the other. For example, you are a great salesperson but a poor organizer. And your partner is the opposite. Then everyone will take on those issues and functions in which he is strong.
Therefore, the question is: where to get start-up capital? You can safely answer: attract a partner!
But there is, as always, BUT.
It must be remembered that a business organized by two or more people is less stable, because. every serious decision regarding his fate must be agreed between the partners.
Arguments between business founders are a common cause of business failure. What difficulties partners may face in organizing and doing business can be read in this article.
5) Attract a professional investor
— a professional investor is an individual (business angel) or an organization (venture fund) that gives money to start-up entrepreneurs. At the same time, they interfere very limitedly in the management of the current affairs of the business.
They do not interfere for one simple reason — their business is to invest in new growing and highly profitable projects.
Develop these projects and resell at a higher price. Professional investors have from 10 to several hundred projects. In such a situation, there is simply not enough time to take part in the ongoing management of each project.
Great, here is the answer for you, where to get start-up capital! He gives money, but does not interfere in the current management! It’s just a dream, not an investor!
From this side, yes.
But on the other hand, getting the money of a professional investor is not so easy. Why? The answer to this question can be found in the article «Business angels and other professional investors».
6) Take advantage of the state business support program
— There are several government support programs for businesses. A series of articles will be devoted to this topic. I will say in advance that among all types of support, grant support is suitable as a source of start-up capital.
The Small Business Grant is a non-refundable and non-repayable subsidy given by the government to encourage people to join the entrepreneurial ranks.
The essence of support is the allocation of funds to start-up entrepreneurs for start-up investments on a competitive basis. The allocation of funds is made within the framework of the long-term federal program «Support and development of small and medium-sized businesses.»
Each subject of the federation independently establishes and determines the volume of such subsidies. The generally accepted amount is $300,000.
With the obvious advantages of this source of start-up capital — gratuitousness and irrevocable — the grant has a number of disadvantages. The main one is that you have to fight for a grant. Moreover, a lot of time and effort must be spent on the struggle. Free cheese, as you know…!
7) Save money yourself
— I know that this source of start-up capital for business is not the most popular. If there was money, then there would be no problems. Why, then, read articles about start-up capital at all? It’s right.
But it is also true that no other source of start-up capital, be it the money of a bank, a partner, a professional investor or a friend, will appear if there is no own investment.
Imagine the situation. Come to the bank:
— Give me a loan. I want to do business!
One of the first questions a bank employee will ask you will be:
— what have you already done? How much of your money have you already invested in the business?
And if the answer is “not at all”! You will be denied credit. And this is understandable: no one wants to risk their money in someone else’s business, in which the business owner does not risk his own money.
You have probably already noticed that every source of money for a business, be it
— partner’s money or
— public money — has its pros and cons.
However, this does not mean that due to the problem of lack of money, you should give up your dream of starting your own business.
Where to get start-up capital? Use multiple sources of funding and you will always be able to raise enough funds to start your business.
You can read more about finding money for your business on your own here .