Four options where to get money for starting a business
Before starting your own business, a private entrepreneur plans his actions. Particular attention is paid to incremental development. During the analysis, the entrepreneur receives data on the number of “necessary steps” before making the first profit.
Every businessman who is adequately related to the stages of building a business understands that starting capital is necessary to open any business. This problem disappears if the entrepreneur has postponed the necessary amount of money in advance, but if it was not in the bank account, then you will have to seriously spend money.
So what to do if the idea for the business is competitive, and the entrepreneur is confident in the stability of income? Do not quit what you started, you should look for a way out of this situation. First you need to get interested in the idea of profitable sponsors – people who can finance the project.
It is believed that a business development loan is the most common option for obtaining initial capital, but investments of this kind may be relevant not only for credit organizations. Often close people agree to finance a business: relatives or friends. In addition, a novice entrepreneur can seek help from the state.
Money for starting a business
The following methods are considered the most relevant options for solving this problem:
Option 1: Business Development Loan
This option is considered the most commonplace. Any credit institution offers its clients small and medium business lending programs. In addition, a loan granted to a large enterprise or company for business development will serve as an additional bonus to the loan specialist who deals with this issue.
Credit organizations offer many programs that contribute to the development of the enterprise. Unfortunately, such loans “burden” the entrepreneur with a high interest on the loan. The interest rate for small and medium-sized businesses, as well as for an individual entrepreneur, “does not fall” below the level of 20-27.5%. Naturally, the borrower significantly overpays, but there are pluses to business lending.
Positive aspects of business lending:
The client receives an agreement in the form of a bank;
All changes to the agreement on the loan rate, loan repayment term and monthly installments cannot be revised without the presence of the borrower;
The payer does not receive additional obligations to the creditor.
Despite the fact that the credit institution is interested in obtaining a business development loan, in addition, the bank receives good interest from the entrepreneur using such a loan, not all credit organizations agree to receive such a loan. This is due to the instability of the young enterprise, with uncertainty about the possible development and profit.
In addition, it is no secret to anyone that few young enterprises are able to make a profit from the first day of operation. Most often, for the first six months, the company “sets up” the workflow, forms a customer base, etc.
Option 2: Consumer Credit
If an entrepreneur starts a business as an “Individual Entrepreneur”, and large investments are not required to start a business, then an application should be submitted to a credit organization for a consumer loan.
It is much easier for an individual to obtain approval for a loan, because it is not required to provide a business plan and prepare a large pile of additional documents.
Like any other loan, consumer lending involves an increased interest rate. If the loan is overdue, pennies and fines will also be overestimated (legally), therefore, it will be necessary to risk the business more often.
Option 3: Borrow money
This method is convenient in that in order to receive funds for the development of the enterprise, a novice businessman does not need to collect a lot of documents and wait for loan approval. The borrower receives the financial means almost immediately; there will be no need to overpay for maintaining a loan and leave the property as a pledge.
This option is effective only if relatives or friends have the necessary funds. In the event of an enterprise collapse, relationships with loved ones can go bad.
This option is suitable only for entrepreneurs opening an IP or registering an LLC. An ideal option might be a small family business. Such a “loan” will not be able to finance large volumes.
Option 4: Private Investment
Promising, competitive ideas can be a good reason to attract third-party investments. Carefully consider creating a business plan. Then contact private investors. Such a loan will be provided on relatively favorable terms, the standard interest rate does not exceed 7-10%.
Such a loan involves great risk and the imposition of huge sanctions in case of violation of payment terms. As a result, debt will increase at times, and maybe tens of times.