Any aspiring entrepreneur someday soon has to think about how to fund the start-up. Should you take it from your savings account or borrow money from friends and relatives? How good are you in dealing with the bank to get a business loan? Can you invite outside investors who are confident about you and can trust you with their money?
Finding the necessary funds for business is a full-time job on its own. It is no easy task to do especially when you are in a really tight financial constraint. This article helps you in this regard. Here is a short guide on how to find some sources of capital to fund your business venture:
Use Your Personal Savings
For most people, they come up with an idea and the desire to venture into business because they have earned enough money to spare. This is sort of like this mental self-talk: “I have money in the bank enough to buy a coffee-shop franchise, I think I’ll invest in one. And besides, I love coffee.”
On the other hand, if you are that risk-averse and you want to calculate as much as possible, you can start by determining how much money you have in your cash account. Out of it, how much you are willing to risk for your start-up? This is a very tough decision to make because worse comes to worst, it is your own money that is at stake and it may take a lot of time to gain it back if the business flops.
Borrow From Family and Friends
Imagine this: You are young, with little business experience, lacking in personal financial resources, but so full of enthusiasm. You think you really can make and succeed in your own business. How will you come up with the start-up money for your planned business?
Quick answer: Pester your friends and family to help you fund your business.
For many spoiled kids with a lot of guts, this would be an option. This approach is good if you have loving family and friends who will support you all the way whether financially or emotionally. You need not look for anyone else to get the money you need as long as they can provide for it. Be sure to give it back according to the terms that you promised prior to borrowing the amount.
Get Business Loan From A Bank
The most popular and common source of business capital in the Philippines is bank financing. This is also one of the most difficult sources of funds to get. To be able to borrow from them, you need to make sure that you have a good business plan. It has to be impressive and you have to be believable, too. It advantageous on your part if you have established a good business relationship with the bank in the past. It would also help if you orient yourself about the 5 C’s of Credit: character, capacity, capital, collateral, and conditions. The longer you are as a client, the better. However, if this is a new venture, you should expect them to require you a collateral (usually in the form of real estate title) to secure the loan. Of course, that’s their business. Just be careful about the interest rates and that you really understand what you are doing and whom you are dealing with.
Side Note: The Magna Carta for MSME or RA 9501 of 2008 required that banks in the Philippine allocate least 8% of their total loan portfolio for micro and small enterprises and 2% for medium enterprises.
Other Sources of Capital
The three sources of fund presented above may be the most common, especially here in the Philippines. But times have changed, these days, you have far more options available. You can explore the following:
- Home Equity Loan — Ask your bank about it.
- Credit Card — Yes, that plastic money that you keep in your wallet.
- Venture Capital / Angel Investors — We have some here in the Philippines.
- Small Business Loans from Government Agencies — visit DTI, and other similar business-oriented agencies
Finding a source of capital is one of the first roadblocks in starting up any business. That is expected as the first steps are always the hardest.