Editor’s note: This article was first published in December 2010; the rise of private financing in Spain after stock market volatility and the claim that Tuenti’s founder carried the project forward with more than 35 private investors reflect that time. Nueva Rumasa, cited in this article as an example, entered insolvency proceedings in 2011; many small investors in its promissory notes and capital increases were not repaid, and members of the Ruiz-Mateos family later faced fraud charges. This article is kept as a historical record and is not investment advice.
There is one idea firmly lodged in the mind of the Spanish-speaking entrepreneur: if you have a business idea, you go to the bank for financing, and once the bank turns down your loan or credit, that’s the end of the idea and the business.
It’s true that, because of the interest rate, we want the bank to fund our project or our business expansion. But it’s also true that the bank is not the only way to finance it. So wake up: the bank is one more source of financing, not the only one.
Some time ago I wrote an article on ways to finance our business and the mistakes we should avoid. In that article we talked about finding financing from our own suppliers and from outside investors, and we advised studying the latter very carefully, since they could turn into a serious problem.
Well, in recent months the situation in Spain has changed: private financing from individual investors and investment clubs has grown, as they look for fresh projects because of stock market volatility.
Take Nueva Rumasa, where we can see private financing raising outside capital even from people who are not investors. Or take Tuenti, whose creator has carried the project forward thanks to more than 35 private investors.
The financing options are incredibly varied, but they all have one thing in common: they want a return on the money they invest. So they look for viable projects and good business plans from entrepreneurs, and I think that is where entrepreneurs are falling short.
A few months ago we launched a business ideas contest, with a generous deadline for submitting projects, which would then be studied by an investment club. I have to say that the investment club will think twice before backing something like this again.
Either Spaniards didn’t take it seriously or they really aren’t ready for this kind of private financing: we received more than 270 business projects from abroad and only 2 Spanish projects, one of them barely viable and the other submitted after the deadline.
Someone even asked us beforehand who regulated the contest, and was disappointed when we replied that it was a private initiative.
So look for private initiatives like this, offer your business plan to investment clubs and private investors and, above all, ask your adviser for information so they can point you to all the possible ways of financing that exist, and there are quite a few.
But above all, remember that if the bank turns down your financing, it’s not the end: it’s the beginning of your search for other financing. What’s more, Google, Facebook, Twitter, Tuenti and so on have no idea what it’s like to ask a bank for money, and from what we can see, they haven’t done badly at all.
Further reading
- Ways to finance our business
- 5 ways to grow our business
- How to start a business with no money
- Why a business plan matters and how to structure it
- How to lose the fear of starting a business
Featured image: U.S. Embassy Nairobi, Public domain, via Wikimedia Commons.
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