Ways to finance the creation of a business
August 23rd, 2010 | 
Author: 
Let’s look at the different ways we have to fund the creation of a new business, ie the different ways we get money to invest in creating or starting a business:
Using equity
The most common way to finance the creation of a new business is using its own capital, ie, using the money we have either obtained from our savings, or any other personal source, for example, by using the credit cards, selling personal assets, etc..
This type of financing is highly recommended since we are not obliged to pay interest or having to repay the money.
It is always advisable to start a business, using equity capital, at least in the stage of creation, and later, when business starts to grow, just start looking for external sources of funding.
If, however, when our equity is not enough, you can combine it with other types of financing that we will see below.
Family
If we do not have enough equity, a good alternative to fund the creation of a business is borrowing money from relatives, which is very likely to accept if they are aware of our ability and responsibility.
The advantage of this type of financing, which generally is not obligated to pay interest (even on our own, begin to be as utilities, financial rewards can trust in us) or we are required to have that money back so quickly, allowing us to work quietly in the creation of our new business, without being pressured by having to repay the money so quickly and on a deadline.
Friends
An alternative to borrowing money from family is requesting money to friends. The usual practice in this case is that the time period for repayment of the money is less. The disadvantage of this form of government guarantee is that friendship can deteriorate if we can not repay the loan within the agreed timeframe.
Banks
Another form of funding for the creation of a business, is to request the bank to borrow money.
This type of financing is somewhat difficult to access, since banks tend to grant loans only to businesses up and with a certain experience in the market, not businesses that are just beginning.
However, access to a bank loan to start a new business is not impossible, if we have good credit standing, good trade references, or an attractive business idea with a solid business plan behind it.
Other financial institutions
An alternative form of financing for banks is to apply a credit to other financial institutions which are aimed at supporting small and medium enterprises.
Some of them are accessible to access credit for the creation of a business, but just as in the previous case, our business idea should be attractive and be supported by the development of a good business plan.
The disadvantage of this type of financing is that, unlike traditional banks, these financial institutions the amount borrowed is small, and the cost of borrowing (interest rate) high.
Investigate in your area by these financial institutions.
Partners
This form of financing involves looking for someone who wants to share the risk of business creation and investing with us.
It is recommended to seek a partner with the same motivations and aspirations as we do.
I also recommend is to find a partner to invest the same capital as us, and to provide, besides the money, other resources that are complementary to those that we have as, for example, experience in some aspect of business, market knowledge, expertise business contacts, etc.
The disadvantage of having a partner is that later may have disagreements, disputes, differences, etc., Especially if the business starts to not achieving the desired objectives.
Investor
Find an investor involves looking for someone who wants to finance all or part of business investment, and as a result receive a percentage of profits according to what is provided.
The disadvantage of using this type of financing is that we have to deal with having to always pay some of the profits from the business, someone who invested initially and then did nothing to create or expand business .
Competitions
Is to participate in competitions on business projects developed by government agencies, universities or other means, where awards for best business idea, with full or partial funding of the project.
If you have an attractive and innovative business idea, research on the existence of this type of competition in your area.
Posted in 
Tags: