Editor’s note: This article was first published in May 2010, during the Spanish credit crunch. The remark that bank financing is “the hardest to get these days” and the grants it mentions reflect Spain at that time, and the list of options predates crowdfunding platforms and today’s startup funding landscape.
One of the biggest obstacles an entrepreneur faces is finding financing for their business. The ways to raise financing are very limited, so let’s go through them below:
1. Banks: The best financing a business can get is the kind a bank can provide, although these days it is the hardest to obtain. New businesses are a risk for a bank when it comes to granting credit and loans. Even so, don’t stop at the first NO. Keep going from branch to branch. Remember that bringing a well-written project and a strong presentation of your business plan can help you get financing. You need to learn how to sell your business idea to the bank.
2. Grants: There are dozens of grants for young entrepreneurs, new businesses and women entrepreneurs. To find out which kind of grant you can apply for, it is highly advisable, and in fact necessary, to see an adviser who specializes in this area. Many entrepreneurs never applied for the aid they were entitled to because they didn’t know it existed.
3. Investors: Finding an outside investor is not an easy task, and mistakes are often made here. You may find someone willing to give your business a financial push, but who wants to become part of it or charges you interest that is far too high. Either way, you would end up with a partner who can take all or a large share of the profits. Also be careful about who invests in your business and where the investment money comes from, because in some cases you could end up in the sights of the authorities or the tax agency.
4. Suppliers: The most important negotiation, and the one we should spend the most time on, is the one we have with our suppliers. They are the best source of financing for our business. With the right approach, you can get them to supply you with goods and pay for the stock you sell rather than the stock sitting in storage. Or you can agree on a first payment date that leaves you enough time to maneuver without feeling suffocated. Many wholesalers and distributors would rather have their product out on the street than sitting in their own warehouses. This kind of negotiation is key to giving your business room to grow.
In many places I’ve seen other forms of financing that, in my view, are quite risky:
- Using the available balance on your credit cards: Strongly discouraged, because of the very high interest you will have to pay. In the long run, credit card debt can also count against you when you apply for a loan or new credit.
- Family: Don’t bring them in at the start of your projects; at most, keep them as emergency help for later on. Ask them for moral support and advice, but not for money in the early days.
- Friends: Only bring them into your project if they are friends you know in advance don’t need the money they are putting in. As a last resort, if you do turn to them, do it with a contract, to give them peace of mind and avoid falling out. Trust and business don’t usually make a good pair.
Further reading
- If you have a business idea: 10 tips for making it happen
- Start a business or buy one?
- Why new businesses fail
- How to start a business with no money
Featured image: Avij (talk · contribs), Public domain, via Wikimedia Commons.
