Being an entrepreneur is not easy, but one of the biggest difficulties in creating a new company is getting the necessary financing for the first months’ expenses and the initial investment. The problem is that banks do not usually offer financing for entrepreneurs, given the risk of giving credit to a new company or to people without previous business experience.
Forms of financing for entrepreneurs
Given this scenario, the most common financing solutions for entrepreneurs is to resort to friends and family. Which can cause many problems in the future especially if the business of the entrepreneur goes wrong. Not only will they lose their money but they may also lose the relationship with family and friends who entrusted their savings with a business idea. To avoid these personal problems, the best solution is to resort to financial institutions specialized in entrepreneurs, or to document the loans of family and friends as if they were external investors. This way we will avoid problems with the payment schedule or the interest rate in exchange for the requested money.
But before documenting the financing request for entrepreneurs, the following should be taken into account :
- Establish the financing needs of the business.
- Have a business plan to ensure economic – financial viability.
- Select the best financing solution for the new company.
Ideas to finance your business project
Related to the last point above, there are two basic forms of financing for entrepreneurs. Very different and with different consequences for the business, both at the level of installment payments and monthly interest. That is, financing through:
- Loans for entrepreneurs: Loans are usually requested to finance something specific, usually a machine, furniture, computer equipment, or a car. So the most usual amount usually varies between 3000 and 15000 euros. Amount of money received at one time and in advance to finance the investment. So the repayment of the loan amount is established in a period, usually in months, which varies according to the type of investment that is financed. But normally it is between 18 and 36 months.
- Credits for entrepreneurs: Unlike loans, loans are not received in advance or for the total amount. In a credit, a maximum money limit is usually established, which is called a policy or line of credit. Therefore when a credit is granted, the money is not received but the possibility of having it for a certain time. That is why interest is paid according to the disposed capital, and not the total. Although the money is not willing to pay a small commission. Normally between 1 and 3 years, which is the term of the line of credit. After which it would have to be renewed or return the total of the money provided. Therefore, credit is a form of financing for entrepreneurs who are not going to make a specific investment but want to have a financial cushion to finance current business expenses. That is why the policy or line of credit is usually classified as financing for working capital. In contrast to the loan that is used to finance fixed assets (machines, cars, computer equipment, etc).
- EmSa young entrepreneurs loans: But as we said at the beginning it is very difficult to get a loan or a credit for entrepreneurs in a bank. So it is best to resort to public financial institutions such as the EmSa or the Official Credit Institute. Entities that have financing lines for entrepreneurs special credits for entrepreneurs with advantageous conditions.