10 Financial Sources Every Entrepreneur Should Know to Fund Their First Startup

Photo by Humphrey Muleba on Unsplash

When I decided to be an entrepreneur, I didn’t have all the resources available at the table. All I ever had was an idea and a laptop. I didn’t have finances. I had employees, nothing at all.

But I started with business financing that helped me get the resources I needed. So, if you are starting your own business but have no financial capital ready at your disposal, I put together some ideas you will find helpful.

1. Loan

The loan is the most common financing method that exists for companies. This is requested in financial entities, stipulating the amount of capital that the company requires to meet the needs it has. Then, this is returned through monthly installments with the interest percentage agreed at the time of contracting. Thanks to the fact that, in general, loans are requested to finance large expansion projects, property acquisitions, brand growth, or startups; They are usually for large and long-term capital amounts.

2. Credit Policy

A credit policy, known daily as “credit,”; is the action with which a banking entity places a previously requested amount of capital at our disposal so that we can make use of it whenever required. This system is developed in a similar way to credit cards, where there is a previously established amount which we can use whenever we need it; and then pay money orders until we have paid the amount used, with the percentage of interest that the institution manages (this is usually 4% but it depends on the conditions of each bank identity and the stipulated term).

This source of financing is usually requested for short periods, in which significant capital is not required. For example, to hire staff or equipment, with which the credit can be repaid once charged for the work.

3. Microcredit

These are personal loans mainly to finance social and ecological projects, although they are also used for companies. In general, social microcredits do not require letters of guarantee and are usually approved for small amounts of money that do not exceed $20,000. Most of the beneficiaries of this type of financing are freelancers, women entrepreneurs, young people, or immigrants.

4. Commercial Credit

Also known as “commercial discounts,” these are the postponements that companies grant to their clients at the time of carrying out a commercial transaction, which may be a sale of goods or services. An example of this would be, agreeing to pay within two months so that there is time to sell the goods or services purchased from the supplier.

5. Factoring

Invoices pending collection are an operation of assignment of the rights to collect, inherent in a company in exchange for an interest. To carry it out, the debtor company must have a high degree of solvency; otherwise, if this does not pay, they could not issue a claim to our company if not to whom we have assigned the invoices. This action is generally carried out to financial entities.

6. Renting and Leasing

Undoubtedly, this is one of the new forms of financing currently standing out, especially for entrepreneurs who do not yet have significant financial capital. Both practices are aimed at the long-term leasing of vehicles, infrastructure, or electronic equipment, to name a few. Although both are based on renting a property, they are not the same. The leasing offers a mostly inclined option to rent itself, in which the lessee pays only for the use of the good.

Additionally, it confers the purchase option, so it is mainly aimed at the final purchase.

For its part, renting consists of the purchase of a property by a company to rent said property to a specific client. The main advantage of this practice is that it generally includes equipment maintenance within its costs, so not only will we have the use of the properties, but we would also obtain significant savings.

7. Business Angels

It is closely related to the Investor Entrepreneur and the Venture Investors. These are generally people with significant capital who invest in companies in their early stages, performing this action in exchange for a percentage of the shares. Typically, Business Angels want to see their investment return in a few years and be actively involved in the company, advising or taking control of the business. If a company has several Business Angels, only one will assume the role of secondary leader. In contrast, the others only provide capital (although they remain alert of what happens within the business management).

8. Crowdlending

Without a doubt, this is the newest option within those that make up this list. It consists of obtaining loans through online companies. How is this done? Connecting SMEs that need financing with investors who can provide it. They usually handle interest of 5% and do not generate costs for early cancellation; additionally, it should be noted that it is carried out between individuals.

9. Crowdfunding

The new source of financing has stood out the most in recent years. The crowdfunding, crowdfunding is online, generated from financial donations. Although most participate altruistically, many others make donations in exchange for bonuses.

To be attractive in the eyes of donors: Projects must be engaging, they must be handled cautiously, and rewards must be offered as an added incentive (for example, if the company will make a product, show it).

10. Family and Friends

Depending on how old your business is, this resource may have one or the other name. It is generally known as “the 3 Efes “: Friends, family, and fools. Since the first people to support us financially are usually our families, friends, or stupid people. That is why it can also be called “the first resource.” Although if our venture is properly founded, what we least want is to abuse our loved ones, so we will call it “the last resort.” Although it is another source of financing, it should be used at your discretion.

As you have seen, there is a wide variety of forms of financing a startup; so you must carefully assess what you need to carry out and determine whether to do short or long-term financing, as well as what types of business financing are best for them to apply for.

Remember that these are sensitive issues that must be studied with great care and always looking for the best for your company. Many successes!

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