However, despite being a common problem, the lack of capital should not be an obstacle to starting a business. If our savings are insufficient, there will always be several ways to get the money we need.
Let’s know some of the main ways to finance the creation of a business.
Own Capital
The most common way to finance the creation of a business is to use your capital, that is, make use of the money we can obtain, either from our savings or from any other personal source, such as the use of credit cards or credit cards for the sale of personal assets.
Using your capital (since we are not obliged to pay interest or return the money) is always advisable, at least at the creation stage. Later, when the business starts to grow, start looking for external sources of financing.
Relatives
If we need more capital, the first alternative is to borrow money from relatives, who are very likely to accept lending us the money if they know our capacity and responsibility.
The advantage of this type of financing is that we are not usually obliged to pay interest (although as soon as the business begins to generate profits, on our account, we could choose to financially reward our family members for the trust placed in us), or return the money so soon and in a deadline, which allows us to work quietly in the creation of our business, without being so pressured by having to return the money.
Friendships
An alternative to asking for money from our relatives is to ask our friends.
The usual in this case is that both the amount of the loan and the term for its return are lower than in the case of our relatives. Still, another significant disadvantage of this financing alternative is that we could deteriorate our friendship with our friends if we cannot return the money within the agreed period.
Banks
This type of financing is difficult to access since banks usually grant loans only to businesses that are underway and with specific experience in the market and not to those that have just started.
However, accessing a bank loan to start a new business is not impossible if we have a good credit reputation, good business references, and an attractive business idea with a solid business plan that supports it.
Engaging Angel Investor
You can still apply old rules while pitching an angel investor. You must avoid jargon and be succinct as you have an exit strategy. The game has become trickier due to the economic turmoil of the last few years. Let’s consider the following tricks to win over the interest of the angel investor.
Experience
The investor’s fear reduces as your management team deals with a tough economy. Highly experienced advisers add value to your credibility even if you are not paying them for this.
Avoid being a fad-follower
Companies start a business as they are genuinely passionate about your idea or wish to cash in on the latest trend. Angel investors don’t prefer companies significantly getting rich with fast and practical schemes.
Know your work and purpose
If you expect to get anywhere with an angel investor, you must have a sales plan, competitive analysis, market assessments, and solid marketing. Young business owners need expert knowledge about the market and the discipline to implement their game plan.
Keep in contact
Maybe you aren’t interested in your business immediately, especially when you have no track record as a lucrative entrepreneur. Strive to fight for that, and for this, you can make a way to keep them in the loop on wide-ranging developments such as a major sale.
Other Financial Entities
An alternative to requesting a loan from banks is to request a loan from other financial entities that are preferably oriented to small and medium enterprises, which are more accessible than banks, and in the case of banks, to access them. Upon loan, our business idea must be attractive and backed by a solid business plan.
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