Starting a business is a step towards independence and freedom. However, one of the most important questions during this phase is : where to find the money to start the project ? The best way to set up a new business is to diversify your sources of financing. Here is an overview of the different sources of capital you can use for your start-up business.
Financing your business with personal funds
The personal contribution is the first source of financing for a business creation. It consists of the project owner’s own funds that he or she uses to start the business. This capital contribution generally represents 20 to 30% of the financial needs of the company. It is used to finance the first expenses of the structure namely :
– The administrative expenses ;
– Notary fees ;
– The expenses of publication in a newspaper of legal announcements…
The personal contribution indicates to banks and potential investors the degree of commitment and willingness you have for your project. This initial fund shows that you are willing to take risks to launch your business. It is a way to convince and entice lending institutions and investors to give you a leg up.
Use local capital
The personal contribution is often insufficient to ensure the operation and the development of a company. You can thus supplement it with other solutions of financing by calling upon external investors. The closest investors are generally friends, relatives and family members. They can provide you with funds in the form of loans that you must repay once your business begins to be profitable.
If you choose this financing option, you must be very careful. Indeed, money from relatives is often not consistent. In addition, the relative who makes the money available to you may want to own a share of your business. To avoid any problems in the future, consider establishing an IOU with the relatives who put money at your disposal.
Take advantage of business incubators
Incubators are organizations that help entrepreneurs. They are often public or private structures that are attached to major schools or companies. These structures make resources available to new businesses, particularly in the field of high technology. The sectors concerned are :
– Industrial technology ;
– Biotechnology ;
– Multimedia ;
– Information technology…
In practice, business incubators can offer you the use of their premises, logistics, and even administrative resources to launch your activities. For example, before you start large-scale production of a product, you can use the laboratories of a business incubator for development and testing. The advantage here is that you will benefit from this resource at a lower cost.
Typically, incubators support start-ups for a period of 1 to 3 years. The help that incubators can give you is not limited to material. They also have a mission of advice. In addition, they can put you in touch with investors who can finance part of your business.
Obtaining government grants
To finance the creation of your business, you can also rely on government grants. You are not required to repay the funding you receive when you use this assistance in accordance with the terms of these grants. However, you must meet certain conditions before you can take advantage of these government grants.
Government grants are awarded according to very strict criteria. The total cost of a grant varies depending on the provider. In order to screen applicants, the granting agencies require the project owner to make a personal contribution equivalent to the amount of the grant. In addition to this personal contribution, you must provide other elements such as
– A detailed presentation of your project ;
– The experience of the company’s main managers ;
– The highlighting of the advantages of the project ;
– The list of the various costs…
Depending on the relevance of your file, grants can be an important help in the process of starting your business. To find Canadian government grants adapted to your project, you can solicit the services of a business financing expert.
Tap into the resources of angels (business angels)
Also known as business angels, angel investors often help start-up companies with strong growth potential. Angels are individuals with significant wealth who invest their financial assets in innovative companies. This type of financing often ranges from $25,000 to $100,000.
Leaders, former executives or proven entrepreneurs, angel investors often have experience in their field. So business angels don’t just provide financial resources. They also offer advice and make their address book available to you.
In return for the help they provide, business angels will supervise the management of your company by sitting on the board of directors. They can also require a transparency insurance to cover the risks they incur by financing the start-up of your company.
On the other hand, business angels are not common. To find one, you need to do extensive research on the Internet. You can also go through associations that specialize in putting these entities in contact with project holders.
Solicit venture capitalists
Like business angels, venture capitalists help promising start-ups. These investors often target the technology sector. They finance the early, high-risk stages of development of certain innovative companies. The amount invested usually exceeds $1 million. In return, venture capitalists take an equity stake in the company and expect to earn a high return.
Taking out bank loans
Bank loans are also a financing solution for start-ups. However, it must be recognized that entrepreneurs often have difficulty obtaining a loan from banks and financial institutions. You can nevertheless present solid guarantees to the bank to have your loan file validated.
If your personal contribution is insufficient, you can look for government programs that guarantee business loans to banks. BDC’s start-up financing, for example, is a comprehensive solution that can help you effectively launch your business.
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