How to Finance a Business Creation Project?

Posted by businessplanconsultancy on July 7th, 2020

Your market research looks good, but your business planning shows a need for financing greater than the capital you have? You are at the right place!

We have prepared this guide to allow you to understand what are the different alternatives at your disposal to finance your business creation project.

Schematically, you can address 4 types of actors to obtain funding for your business creation project:

  • Equity investors
  • Banks and credit institutions
  • Crowdfunding platforms
  • Public bodies

Let's see the details.

Equity Investors

Equity investors will take shares in your business to make a profit in a few years.

This kind of investment can only be made if you establish a business, not an individual corporation or a single product.

Using equity investors has 3 significant advantages.

The 1st advantage is that you have no obligation to repay the funds. Your investors will hope to be able to achieve a strong return on investment by receiving dividends or by realizing a gain on the resale of their securities, but if things do not go as planned, you will have nothing to repay.

The second advantage is the credibility it brings to your project. The capital contributions made by investors will strengthen the company's equity, which will give you greater credibility, vis-à-vis the banks and your business partners.

Finally, investors can also bring you, in addition to their money, their expertise, and their address book.

Investing in equity nevertheless has 2 drawbacks. The first is that in return for this investment, you will have to cede part of the control of your business to investors. The second is that equity is the most expensive form of capital for the company in the long term (need to offer an attractive return on investment to attract investors).

You can request an equity investment from different types of investors.

You can first approach your part

ners to offer them to advance money to the company on a current account of partners in addition to their contribution to the starting capital of the company.

You can also turn to your loved ones to request an investment in love money.

Finally, you can approach professional investors: business angels or specialized funds depending on the sector and the level of progress of your project.

Banks and Credit Institutions

You can call on specialized banks and credit institutions to finance part of the company's assets.

Simply put, you need 3 things to make your project bankable:

  1. Demonstrate that your plan is credible: the existence of a market, management team knowing the sector, etc.
  2. Assets to finance: banks only lend to small businesses based on historical assets or cash flows
  3. An equity contribution allowing an equitable distribution of financial risks between the bank and the project leaders

The main advantage of bank financing is that its cost is relatively low compared to equity. The main disadvantage is that you will have to comply with the interest payment and principal repayment schedules.

There are a large number of specialized products available to you here: from overdraft to borrowing to leasing. We have grouped with the presentation of the operation and the cost of these products in the following 2 guides:

  • Investment financing
  • Financing of the operating cycle

Crowdfunding Platforms

Crowdfunding platforms allow you to collect donations, loans, or investments from a large group of people.

The idea behind this concept is that it is sometimes easier to find 1,000 people who can contribute less money to the funding of the project than a person who can provide an enormous amount alone.

You can find more information on how crowdfunding works and the players in our crowdfunding guide.

Public Bodies

The last type of persons from whom you can request financial assistance to finance your business creation project is public bodies.

Here we are, we hope that you have been able to profit from this guide to fund a company idea. Do not hesitate to share it with social networks and let us know your input.

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