How to choose the right financing method

Whether you’re at the beginning of your entrepreneurial journey or you’re trying to grow your business, you’ve already noticed that raising money is no easy task. Luckily, there are more alternatives: we tell you how to choose the right form of financing for you.

First, let’s ask ourselves an important question: why do you need financing? The answer seems obvious: any business runs with money, and capital is the engine of your project. But there is much more to it: that financial backing will help you get off the ground, help you grow, and expand to achieve your goals. If you know how to choose the right form of financing, your startup will consolidate and become bigger and more productive.

How much money do you need… and for how long?

Start doing the numbers and think, especially, about the time frame. To do this, try to “translate” into numbers each of the decisions you have planned; this way you will know the expenses your company will have. Take into account, for example, these variables:

• Initial expenses.
• Supplier expenses.
• The date on which the business will begin to have income.
• Purpose of the money earned.
• Ability to repay the financing and in what installments.

Advantages and disadvantages of different forms of financing:

Let’s face it: financing possibilities are not plentiful. In reality, they are reduced to your own or other people’s money (you borrow it from your family, from a bank, you get grants or you turn to private investors). For any of the chosen forms, the benefits are:

• Better control of your income, debts, and fixed expenses.
• Greater capacity for commercial negotiation against other competitors.
• Possibility to innovate constantly.
• Access to complementary financial services.

However, there are differences if we are talking about the economic support of private investors or financing yourself. In the first case, you will have the capital for your startup and greater brainstorming to make the company grow (more “partners” in the business will be able to contribute more visions about the project). On the other hand, you will lose independence, since investors have a voice and a vote to control the proper use of the money they have granted. In addition, if the loan has to be repaid and the interests are high, you may find yourself in a compromised situation to repay the debt in case the business does not go well. If you “pull your own chestnuts out of the fire” (i.e. bootstrapping), you gain autonomy, independence, and speed: you are your own boss and you make the rules. You also have greater security and liability coverage, since by investing your own money, you don’t have to worry about the risk that always comes with borrowing from another entity. Among the “cons” of this method is the need to start from the beginning with all the capital necessary to guarantee the survival of the company during the following months. Moreover, in some cases, not having investors means not having credibility. Why? Because they are the ones who believe in your potential; that, on the other hand, translates into potential business opportunities that you would otherwise lose. And now… to start your career as an entrepreneur! But don’t forget something important: one thing is what you want to do and another is what you can afford. Be realistic and consider all possible scenarios, because success is also about learning from mistakes! Photo by Kelly Sikkema in Unsplash.