Do you want to start your business? For that, you will have to mobilize material, human and financial means. But if money is the sinews of war, it is the carotid artery of the business. You won’t get very far if you have to rely solely on your own funds to have a healthy and solid cash flow. Also, of the three necessary means, the financial one is the most important, because the other means depend on it. In the case of a company in ideation or that has not yet reached the threshold of profitability, venture capital allows to launch the company. In this article, we focus on the different options available to you, as a business promoter, to find investors.
With a bank or credit institution
Classic solution, approaching credit institutions and banks is one of the many ways to finance a part of the assets of one’s company. However, the bank is often a complementary investor to launch its project. Generally, banking institutions and credit institutions each have eligibility criteria and conditions. These may include:
– Business sector,
– Justification of the viability and credibility of the project,
– Equity contribution of a percentage for financial risk sharing,
Banking institutions usually have a credit package for SMEs with set conditions and benefits. While this type of financing can provide your company with funds, it is important to keep in mind that these are loans that must be repaid according to predetermined conditions. As a business, the bank’s goal is to minimize the risks inherent in its activity. It therefore frequently seeks to share the financial risks either with you or with other banks or organizations. This type of loan has interest rates that are proportional to the duration of the loan. In short, the longer the loan, the higher the interest rates.
Financing your business with love money
Behind this pretty anglicism is a simple concept. It is not the money of love. It’s about financing your project with donations from people close to you. It can be friends, family, etc. It is the simplest and oldest form of external financing that exists. Moreover, this type of financing does not generate any particular cost, because there are neither commissions, nor interests.
The disadvantages of this type of financing are congenital to its nature. Thus, when it comes to love money coming from the promoter’s circle of acquaintances, they will not be able to challenge the manager on the relevance of his development strategies or on the viability of the project. This situation can reinforce the promoter’s biased convictions and erroneous approaches, leading him to lead the company to a certain death.
Other disadvantages of this financing option are the relational tensions that can arise either from the management of these funds or from the failure of the business and the often derisory nature of the sums collected. Nevertheless, love money is a very interesting way to launch a business and is an alternative to the bank financing mentioned above.
With private organizations
These are solidarity-based venture capital organizations, business incubators and business angels. These organizations accompany and monitor local businesses. Their support can cover all aspects of the business and can go from the idea to the Proof of Work. They can provide you with honorary loans that will be highly appreciated later by banking institutions.
Business incubators support business creation and can enrich your address book. Business angels are angel investors who look for companies with high growth potential. Just like incubators, business angels bring their experience, address book and advice in addition to financial support.
You can ask around to find out what opportunities are available to you. Don’t hesitate to contact these local organizations, in any case, before starting your business. In general, the interest rates for this type of financing are lower than those for bank financing. Sometimes the rate is zero. However, the selection is still very strict and certain sectors of activity are prioritized.
By launching a Crowdfunding campaign
Participatory financing and its alternative, crowdlending, are options that are well worth considering. It is a financing mechanism that allows you to collect your start-up funds from a large public. It works most often through the internet and can take three forms:
– In the form of a loan (crowdlending)
– In the form of donations or contributions that may be matched
– In the form of subscriptions for debt or equity securities that the company issues
Crowdfunding is an atypical means of financing, because you will have to convince Internet users, not necessarily informed, of the interest of your company. Apart from the preparation that this requires, you must be prepared to be available to answer all the questions and solicitations of the large number of people who participate or wish to participate in your donation drive. You also need to be able to say thank you, communicate about the progress of the project, etc. Crowdfunding is not as simple as it seems.
However, be sure to look for a crowdfunding platform that has a regulated status in your jurisdiction. In addition, you should take into account that these platforms charge a fairly high fee on the funding received. This levy is often between 3% and 8%.
With a public agency
Finally, you can solicit the support of state or decentralized public organizations to finance your project. These organizations do not limit themselves to financial support and are often involved in the development of the enterprise. They offer support solutions that can be very interesting because, beyond the financial means, the promoter has other needs to sustain his business project.
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