One of the most important challenges in starting any new business is raising the capital to get things up and running. Businesses need money. Regardless of the sector, or the type of business, you will need capital to fund the costs of starting up, in addition to a comfortable buffer for living costs in the short-term. Even the most successful businessmen had to start somewhere, such as Francesco Corallo, of Francesco Corallo’s blog. Entrepreneurs use various methods of raising the funding they need, and there are plenty of opportunities out there that are available to new business owners. But are there preferred ways of accessing the capital you need to get going?
There are a number of ways in which you can finance your new business. The first place most entrepreneurs look is to their own savings. It goes without saying that you need to spend a great deal of your own money first, before you go looking for support from banks or investors. Money just isn’t available so freely, and the expenses of interest or equity make it vital to consider your own options first. This extends to those with wealthy parents, or family members they can ask for support in the early stages. This is never guaranteed of course, but as long as you can save some money personally, that may be enough to get you started in business.
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The next option is to approach the bank for a business loan. This is a common route for those who perhaps require more capital to get started, or for those who have already allocated their own resources to start up costs. Banks may be willing to lend if you can offer them some security, and if you can show a solid, watertight business plan. This will most likely require meetings with the bank, and your individual credit profile will probably be used to calculate the interest.
The third main option that you can choose for funding is to seek an investment from a third party. This will usually be conducted on an equity basis, whereby the investor will want a percentage of your business in exchange for their money. This is not a decision to be taken lightly. Bear in mind that when you surrender equity, you surrender both a share of your profits and a share of ownership. When a bank loan is available, it is often considered to be a cheaper source of funding for this reason. You should only be thinking about an investor where there is a particular advantage in securing their support.
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There are no right and wrong answers with funding. It depends on what is right for your business at the time of starting out. Too many entrepreneurs get precious over their business idea, or their potential sales, and start asking investors for way too much money. Instead, it is important to be realistic about your business in its current form. This will help you pitch your requests for capital more accurately, so you can get the best deal out of your funding arrangements.