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How to Finance Your Business Startup
Are you an entrepreneur looking for how to finance your business startup? Are you running low on cash and you need some amount of money to back you up? I am here to help you get multiple ways to kick-start that dream business of yours without any constraint of capital. I want to show you in this post how you can be able to finance your business with or without your own capital.
It has been shown from researches that getting fund to finance business that always been a difficult challenge for most startup entrepreneurs. The objective of this article is to reveal to you, different ways to get fund to finance your startup.
If getting finance for your business startup is your problem, here are ways you can solve that problem;
1. Venture Capital
These are some investors who specialize in financing business startups that they believe have good prospects of return on investment. These investors provide the necessary funds to start up the business and do this in exchange for equity holdings in the business.
If you have little capital or none to finance your business startup, then approaching these individuals should be your best bet.
Some business startup owners sometimes turn to venture capitalists when they want to grow their business but cannot convince banks for loans. Venture capitalists can be useful when you need to finance your business startup.
What do Venture Capitalists Look for in a Business Startups?
The venture capitalists look for the business idea in your business plan. They also look at the financing plans, break-even analysis, projected monthly and yearly income statements, demand for the product analysis, market research and plan for the product or service, legal structure, competitive advantage, startup and operating cost etc.
The business owner must provide all this information in an executive summary. Most venture capitalist do not take the risk without a business plan.
2. Angel Investors
These are private individuals that makes money available in exchange for an ownership in your business startup. They provide equity funds to entrepreneurs in return for an agreed percentage share of the profits of the business venture.
Angel investors do not actively participate in the management of the firm; they may however offer useful advice to the entrepreneurs from time to time.
3. Bank Borrowing
Bank borrowing usually takes two forms: bank overdraft and bank loans. Bank overdraft is a situation where a bank allows its customers to withdraw over and above the credit balance in their accounts.
The business startup will be required to maintain current account with the bank before it can obtain this financing opportunity. A limit will be placed on this facility, and the firm is free to obtain as much as little cash within the overdraft limit.
The bank charges interest on the amount overdrawn outstanding at any one time. The interest charges vary with the bank base rate. The amount above the base rate (usually a prime rate) depends on the credit worthiness of the borrower. An overdraft may be secured or unsecured.
Securities usually take the form of fixed or floating charges on assets and sometimes personal guarantees from the borrower. Banks grant unsecured overdraft to only high credit worthy business firms.
Bank loan on the other hand, is a formal agreement between a bank and the borrower that the bank will lend a specific amount of money for a specific period. Interest is payable on the whole of this sum for the duration of the loan. Interest charges and requirements for security are similar to an overdraft.
In granting a small business loan, the bank usually takes into consideration the following;
• The purpose of the loan.
• The amount involved.
• The duration of the loan.
• The character of the loan.
• The security for the loan.
Before approaching any bank for loan application, you must be ready to answer many questions because most banks are now scared to give out loans without proper scrutiny of the borrower to ensure he or she can pay back.
4. Personal Savings
Before thinking of starting a business, any entrepreneur must have saved some cash whether he or she will go seek for funds or not. Your personal savings maybe your personal saving account or inherited wealth.
There is significant evidence globally that entrepreneurs depend on personal savings to start their new ventures. This is because the cash is readily available and can be mobilized easily and quickly.
Besides, business startup owners can also dispose their personal assets in order to finance their venture and this is usually considered by institutional investors (banks and venture capitalists) as the strongest indicator of the entrepreneur’s belief and commitment to the success of the business startup.
5. Family and Friends
Family members and close friends are usually willing to provide financial assistance to the would-be entrepreneurs once they are convinced that the entrepreneurs have the pre-requisite knowledge and skill to manage the new venture successfully.
Personal character and trustworthiness are the major consideration before agric loan and other types of funding are granted. However, the use of friends and relations to help provide finance for your business startup creates obligations on the part of the entrepreneur to assist his friend and family members when the business eventually succeeds.