Financing modalities for entrepreneurs

  • Sometimes extra liquidity is needed, so it is worth knowing the financing modalities for entrepreneurs that can be used.

  • Setting up your own business requires, among other things, a certain flow of money. Yes, it is very romantic to speak of self-employment as a path of roses in which a dream is pursued and personal goals are achieved only with effort and creativity, but it is not quite like that

    There are many circumstances in which the company needs to use financing to continue growing or overcome certain hard times. No matter how healthy your accounts are, the vast majority of companies you know have done so at some point. So let's see how you can do it too. 
  • What should I ask myself before seeking financing?

  • Obviously, this is a decision that cannot be taken lightly because, after all, it will affect us in the immediate future of the business. The bad thing about financing is that it usually has to be repaid and that generates installments, payments and interest

    The first thing you have to think about is the amount of money you really need

    Thus, in general, we can assume that we have to pay a supplier when we have yet to collect a 60-day invoice (something tha is too common). 

    You may also need to invest in a new machine to carry out your activity. In this case, you need to be clear about the impact this machine is going to have on the productivity of your business and when it will have actually been amortized
  • Because of that, you had better make a cash flow projection in which you value your needs as accurately as possible and what is your ability to generate resources by itself. 

    This answers the key question: do I have the capacity to repay the credit within the stipulated terms and conditions? What margin of error do I manage? 

    It can also affect when we transfer part of the business to a third party as consideration for an economic figure to grow or guarantee viability. 

    In this case, the implications are more strategic and control than directly economic, but we must also assess how far we are willing to compromise
  • Financing modalities for entrepreneurs

  • Being clear about all said above, we can consider taking the next step and start condering different financing modalities you have access to undertake. 
  • #1 – F.F.F. (Friends, Family and Fools)

  • This is the way many entrepreneurs start their business. Basically, it consists of financing yourself with the funds that your family, friends and the occasional “unwary” who believes in your project as much as you do. 

    Many entrepreneurs have thus obtained a financial contribution under more advantageous conditions than those of a bank. It is true that it can also generate a tension in the personal circle, but Jeff Bezos did it to create Amazon and let's say it did not go bad at all. 
  • #2 – Private financing

  • There are always professionals ready to invest in future businesses. You have the option of designing a short, medium and long-term viability plan to use this type of financing for entrepreneurs. 

    On the one hand, we can request a seed finance to start the business. In this case, we will have to negotiate directly with the investor the percentage of the company that we are willing to transfer in exchange for the money or the terms and amount of the return. 

    If the company is already underway and we seek to make it grow, another option is venture capital funds and companies. These organizations analyze the state of the business and its projection, and based on this, they offer financing and resources in the medium or long term on a temporary basis. 

    The best thing about venture capital companies is that they not only provide liquidity: they also advise and help in decision-making from their experience. 
  • In private investment, we can also include the so-called Business Angels who, unlike venture capital companies, contribute their own personal funds with the same objective: profitability for both parties. Let's say involvement goes a little further. 
  • #3 – Banks

  • In this sense, surely the bank where you have your business accounts are already bombarding you with credit offers, even with the typical email or notification of pre-granted loans that you just have to sign and go. 

    The main advice that we can give you in this case is not to keep the first you are offered as a convenience. It is much better you compare other options before making the final decision. You have to analyze in detail aspects such as: 

      • - APR (Annual Equivalent Rate): this will determine the interest that a credit generates, which you will have to pay in the long term added to the loan amount. 
      • - TIN (Nominal Interest Rate): this is the effective interest rate agreed with the entity. 
      • - Maximum and minimum amounts.
      • - Maximum and minimum terms

    On the Internet you can find different comparators of financial products for companies and freelancers that will help you have a broader vision. Anyway, this is something that you must negotiate directly with each entity. 
  • #4 – Public financing

  • The State also offers some aid and lines of credit. The so-called ICO lines are well known, which allow entrepreneurs and companies to be financed under fairly advantageous conditions.

    Thanks to them, various business activities can be financed at all levels (both national and for the internationalization of business). 

    In addition to these ICOs, you should carry out some research to see if your circumstances allow you to access some type of subsidy or incentive both locally and nationally. 

    There are certain reductions and bonuses from Social Security, for hiring workers (and thus being able to delegate a little), for conciliation ... You can check some of these on SEPE website, but it is worth to talk to an consultant
  • Which of these types of financing for entrepreneurs have you used? From your experience, which one would you recommend? We follow your comments! 
  • Images | Unsplash.

Laia Ordoñez

Laia Ordóñez is a copywriting & eCommerce content marketing expert. She is Content & Marketing Manager at DueHome, a copywriting & content independent advisor, and Oleoshop's blog's editor-in-chief.

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