Ways to Finance Your Business – This article is all you need to know on how to finance your business in case maybe you are short of funds to increase the size of your business, here are ideas you can apply to finance your business.
Remember that bankers do not see themselves as your only source of finance. And to show that you are looking for or using different financial alternatives, it shows lenders that you are an active entrepreneur.
Whether you choose a bank loan, an angel investor, a government grant or a business incubator, each of these sources of financing has specific advantages and disadvantages, as well as procedures. which they will use to evaluate your business.
7 Most Common Ways to Finance Your Business
Here’s an overview of Ways to Finance Your Business for start-ups:
1. Personal investment
To start a business, you must be your first investor – whether with your own money or guarantees for your assets. This proves to investors and bankers that you have a long-term commitment to your project and that you are ready to take risks.
2. Venture capital
The first thing to remember is that venture capital is not necessary for all entrepreneurs. At the outset, you should know that venture capitalists are looking for technology-driven companies and companies with high growth potential in sectors such as information technology, communications and biotechnology.
Venture capitalists have an equity position in the company, which helps them implement a promising but high-risk project. This involves transferring some of your company’s ownership or equity to an external party.
Venture capitalists also expect a healthy return on their investment, which is often generated when a company starts selling shares to the public. Make sure you find investors who will bring relevant experience and knowledge to your business.
Angels are often wealthy individuals, such as retired managers, who have invested directly in small businesses owned by others. They are always leaders in their field, contributing not only with their experience and network of contacts but also with their technical and/or managerial knowledge. Angels are likely to spend the initial stages of their business with investments ranging from $ 25,000 to $ 100,000. Institutional venture capitalists prefer larger investments in the $ 1,000,000 range.
Instead of risking their money, they have the right to control the company’s management practices. Specifically, this usually includes a position on the board of directors and a guarantee of transparency.
Angels are likely to remain inconspicuous. To meet them, you must contact a special association or search the angels’ website. The National Angel Capital Organization (NACO) is an umbrella organization that helps build capacity for angel investors in Canada. You can look in the directory of their members, where you will find ideas on who you can contact in your region.
4. Love money
This is money lent by a spouse, parent, family or friends. Investors and bankers consider it the “patient’s capital,” which is money that will be paid out later as your business profits grow.
If you enjoy borrowing money, you should know that:
- Family and friends seldom have much capital
- They can be honest in your business
- A business relationship with family or friends should never be underestimated
5. Business incubators
Business incubators (such as “accelerators”) usually focus on the high-tech sector by providing support to new businesses at various stages of development. However, there are also local incubators for economic growth that focus on areas such as job creation, revitalization and hosting, and service sharing.
Incubators usually invite potential companies and other start-ups to share their space as well as their administrative, logistical, and technical resources. For example, an incubator may share the use of its laboratories so that the new company can develop and test its products cheaper before production begins.
The incubation period can usually last up to two years. When the product is ready, the company usually leaves the incubator area, enters the industrial production phase, and leaves alone.
6. Bank loans
Bank loans are the most widely used source of financing for small and medium-sized enterprises. Take into account the fact that all banks offer various benefits, whether it is personal services or tailor-made payments. It is good to shop and find a bank that can meet your specific needs.
In general, you should know that bankers are looking for companies that have good results and have very good credit. Not enough is a good idea; it must be supported by a solid business plan. Starter loans also often require personal liability from entrepreneurs.
BDC provides start-up financing to entrepreneurs in the start-up phase or the first 12 months of sales. You can also defer principal payments for up to 12 months.
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7. Government grants and subsidies
Government agencies provide funding such as grants and subsidies that can be used for your business. The Canada Business Network provides a complete list of various government programs at the federal and provincial levels.
Obtaining subsidies can be difficult. There can be strong competition and pricing rules are always strict. Most grants usually require you to match the funds provided to you, and this amount varies greatly depending on the provider. For example, a research grant may require you to cover only 40% of the total cost.
In general, you should provide:
- Detailed description of the project
- Explain the benefits of your project
- Detailed work plan with full costs
- Details of relevant experience and background of key managers
- Applications are filled in as needed
Most reviewers will rate your proposal based on the following criteria:
- Evaluate skills
- The subsidy is mandatory
Some of the problem areas where candidates do not receive a grant include:
- Research / work is irrelevant
- Ineligible geographical location
- Applicants were unable to communicate the relevance of their ideas
- The proposal does not provide a reliable justification
- The research plan was not focused
- There is an incredible amount of work involved
- Funds are incompatible
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