8 founding tips for startup business financing
Without sufficient capital, the best business idea is usually very difficult to implement. We show 8 possible ways for founders to get the funds they need to get started.
The business idea can still be so successful – if the right startup financing and thus the necessary capital is missing, the company foundation or the growth will not succeed after the successful start. There is now a large selection of different financing instruments for founders and young companies. But what options are there in concrete terms?
Bootstrapping (American-English term for “lace”) is financed entirely by the founder’s own resources. In the figurative sense, the company is pulling its own shoe laces into profitability. Of course, this type of financing offers the most independence, but is only applicable to a few business models in practice.
2. Promotional loans
Promotional banks such as KfW have the task of promoting economic development. This also includes the support of start-ups and young entrepreneurs – both in the founding and in the further financing of corporate growth: Special programs such as the ERP-Gründerkredit of KfW are among them.
What can the ERP start-up loan be used for?
Through the promotional program ERP-Gründerkredit – Universell der KfW, founders receive up to 25 million euros as promotional loans to start, take over or consolidate a company. For example, the following can be financed by this means:
Plant and machinery, IT and software
Land and buildings
Construction costs and furnishings
Operating and office equipment
Material and warehouse inventory
Deposit and rent
Marketing and consulting costs
3. Founding subsidies
In addition to subsidies from public development banks, which have to be repaid like a loan, other public institutions at state, federal or EU level also grant non-repayable grants for founding. These are usually coupled to certain conditions.
4. Start-up competitions
As a founder you are used to selling your own idea as best as possible. Start-up and pitch competitions are a great way to meet investors and business angels and convince them of the business plan. Of course, entrepreneurs should not rely exclusively on this opportunity, but a certain presence in the startup and startup scene in the region can also be valuable in finding funding.
5. Startup financing through loans
Although difficult to get for young companies, financing via traditional loans is also possible. However, this form of financing often fails because of the collateral and own funds to be provided. However, founders and young companies should not throw in the towel for a bank loan too soon: a loan may also be possible for founders and younger companies.
6. Venture capital
Venture capital is not a loan but a form of venture capital donor involvement. A distinction is made between the Seed Stage, the Early Stage and the Later Stage financing. The lender sometimes takes on high risks of loss and therefore very carefully selects possible companies that he wants to support.
7. Business Angels
Compared to the venture capital donor, the Business Angel usually not only with capital, but also with his expertise, know-how and network the founder to the side. On the one hand, there are business angel networks, but also individuals who, for example, make contact with young companies via start-up and pitch competitions.
Crowd financings such as crowdfunding, crowdlending or crowdinvesting are typically provided through online platforms that specialize in mediating to private or business users. The crowd (English for the crowd) finances a project – the funds come not from a bank or another financial provider, but mostly from individuals who invest money in this way. The consideration may consist of interest or a percentage or profit interest in the company.
In particular, startups have been using this form of financing in recent years, when they are denied funding by other means: through the opportunity to create a strong emotional bond with potential investors, companies in the start-up phase can convince investors with just an idea and a start create. In addition, success on a crowd platform can help to give a first indication of how the product reaches the market.
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