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How to finance the initial investment in a small business


finance initial business investment For many entrepreneurs, the main question before launching the business is to get enough money to finance the project. Even for small businesses and small investments, the necessary capital is not always available. In this article, we are going to review some of the options for financing the initial investment in a small business. We will talk about credits, of course, but also about other possibilities.

#1 Work and save

You may be surprised by that possibility. But, if you are thinking of setting up a business and you do not have enough money, working as an employee and saving for a few months can be an interesting solution. And it’s not just about the money. Many people want to start a business without having real experience in the sector where they are going to set up their business. Being an employee for a season allows you to learn many things from the ins and outs of the activity. This will allow you to avoid mistakes when setting up your business.


#2 Apply for a loan

Resorting to credit is the natural option when you need to finance the investment in your project. You have different possibilities, depending on the amount of money you need and the guarantees you can offer.

Among the easiest financing to obtain are paperless loans , that is, fast loans that are generally obtained on specialized financial platforms on the Internet. They can be an option for rather small amounts, that is, not exceeding a few thousand euros. It is a flexible and fast possibility , but it is important that you look at the cost of credit, measured by the APR, to compare loans before contracting them.

Then there are the more classic bank loans , which will normally require some personal guarantees, unless you can count on the guarantee of a reciprocal guarantee company. In any case, it will be necessary to prepare a business plan to show the viability of the project.


#3 The help of family and friends

In the entrepreneurial world, there is an interesting concept called “ love money ”, which consists of loans, donations or shares from family and friends. As you can understand, before putting financial issues in the middle of affective relationships, you have to think very carefully about the consequences.

One of the most important aspects is to make things clear . If it is a loan, it must be formalized, indicating the conditions under which it will be returned. If the injection of money into the project takes the form of a participation in the capital, it also has to be made clear.

Another fundamental element is to explain very well the risks of the business , because the main motivation of family and friends will be to help, and they may not look in detail in what you are investing. Again, having prepared a business plan , even if it is small, can be of great help.


#4 Count on public aid

I am not going to list all the help that small businesses have in Spain, because I already have a detailed article about it. I will insist on two things only. The first is that the single payment is an excellent way to obtain financing if you are unemployed with the right to benefit. It is usually authorized and paid for quickly, allowing you to get started with some capital.

The second comment is that the rest of the aid may take a long time to materialize and be paid . That does not mean that you have to request them just in case, but having them to start is a mistake.

#5 Private investors

Another alternative to finance a small business is to go find a private investor. They are more difficult to meet, but in the entrepreneurial world, there are many successful entrepreneurs who want to participate in interesting projects. There are also investors who have specialized in putting money into companies with potential.

Clearly, it is a type of financing that works best if it is a scalable project , that is, one that is capable of generating almost exponential benefits as it grows. For other more traditional businesses, it may be more difficult to get the support of a private investor. In any case, you will have to avoid saying some things to your potential investor if you do not want to scare him away.

#6 Design an alternative business model

Another possibility to finance a new business project is to think of a way to not need so much money to start up. This can be done in several ways, but I will mention three of them.

Rationalize the concept to invest only in what is necessary . It is the idea of ​​proposing the minimum possible investment so that the business remains viable. Many times you want to start big, but with a leaner approach, you have more financial flexibility.

Another option is to give up buying some equipment, to switch to a rental or leasing solution. That way, the initial investment required is much lower.

Thinking about an alternative business model also allows you to avoid having to seek a lot of financing, especially if you opt for something that makes customers the ones who advance the money. This is what usually happens with many subscription businesses , for example. In reality, in these businesses, customers pay first for a service that is provided afterwards, sometimes with a considerable delay.

Evaluate the advantages and disadvantages of each option before deciding

As you can see, there are many alternatives to finance a business. You can choose any of them, or even several, combining them to get a higher initial capital . But, before opting for any, stop to think about the pros and cons of each option.

For example, in the case of “love money”, reflect on the impact that debt could have on the relationship with the person who lent you the money. If you opt for a private investor, assess the loss of control over your business that this may entail. In case of choosing a credit, look at the conditions and costs. And so for each option.

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