Aug 23, 2022

An entrepreneur’s guide to financing business startups

Navigating a business is one thing, investing in one is another!

Madison @CAKE
Madison @CAKE

When considering whether or not to start a business, there are usually two routes one will choose between, or it’ll likely be a combination of both: unloading your personal finances (and your faith) into the business and hoping that your startup doesn’t fall through, or, alternatively, taking out a loan from the bank to kickstart the business, with hopes of paying it back over time. 

While both are possible options, there’s way more to it than putting all your eggs in one basket (which is definitely not recommended). First, begin with allocating your resources. It’s important to make an assessment of all goods and services. Ask yourself: “What is the scope of this project?” and “What resources do I need?” By doing so, this will instill preparedness in yourself, and in the future of the startup itself. 

Next, it’s important to consider different kinds of finances. Your first investment should be a personal investment, as it will work to secure a loan with the bank. By taking out a sum of your own money, banks and investors will see that you’re committed. Apart from that, there are other sources of capital that can help any business to progress. 

As previously mentioned, startup business loans are also popular as they are usually large enough to conquer any problem or expense the business might face, some examples being: Relocation, inventory, sourcing, cash flow or advertising, to name a few. For this reason, bank loans are great when it comes to increasing your capital, however they have to go through a pre-approval process, and interest rates for said loans are often high. Though some might be skeptical about their willingness to make set payments on time, generally, the rule is, you need to have money to make money. This means that by refusing to take out a bank loan when your business is just getting going, you might greatly hinder its growth or even its ability to stay afloat. For most businesses, bank loans are the reason they take off. 

Angel funding is also growing increasingly popular, and is defined as providing a firm with an ‘angel’; an individual who offers financial backing for small startups or entrepreneurs, typically in exchange for ownership equity of the company. In exchange for risking their money, the angels reserve all rights to supervise a companies’ management practices. While this might not be everyones’ cup of tea, it can be less predatory than other forms of funding, and promotes economic growth over a period of time. 

Government grants and subsidies are also a popular option worth looking into! These programs are used to help with business expansion and are made to save you money and lower your startup costs. The only thing to keep in mind is that with each grant, there are different qualifications that the business must adhere to, which means the amount of funding might differ depending on the size of the business, the amount of employers, or the business idea itself, among other resources. 

Another way to secure finances for your startup is through a business incubator. Business incubators are programs organized by sector or region that give very early stage companies access to mentorships, providing them with the leadership they need to get their business up and running. This works in the favour of the business because oftentimes, beginner companies find any support difficult to access. Business incubators are often used for (but not exclusive to) academic organizations, non-profit organizations and commercial organizations. The business incubators work to allow that support to be possible for as long as the business needs. The time spent with a business incubator varies, and it’s important to keep in mind that they will seek a return on the investment, so if you don’t want to dilute your share in the business, this might not be the option for you. 

As the finance journey progresses, venture capitalists might join in, looking to fund your startup. Venture capitalists are defined as private equity investors that provide capital to companies with high growth potential in exchange for an equity stake. This usually happens later on because if venture capitalists choose to invest in the company, and the company proves to be a success, the venture capitalists can then earn a massive return on their investments. 

It’s been made clear that through each form of finance comes a different level of support. Because businesses need funding for a multitude of different purposes, it’s important to figure out the best way to get your businesses’ finances kick-started, and stick to whatever method works best for you. 

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