Methods of Financing
- It would be nice if all the funds necessary for the business could be prepared with “own funds such as savings”, but it may be difficult depending on the business.
- It is possible to raise funds from outside even before the opening of the business. In particular, borrowing from financial institutions has an advantageous system limited to funding-related businesses, and is socially backing up the opening of business.
- It is quite possible that the savings will be saved as living expenses for the time being and the business funds will be used for advantageous borrowing.
Specific financing method
In addition to self-financing such as deposits and savings saved in advance and borrowings from financial institutions, we may use investment or subsidies/subsidies to raise funds. In many cases, you will need to combine multiple financing methods to raise the total amount of funds required, but here we will briefly explain the points of each financing method.
- Own funds
The first is “own funds”. The advantage of using own funds is that compared to other procurement methods, there is no need for repayment and there are few restrictions on usage.
Of course, since it is my own funds, management tends to be unstable at the beginning of the business, so the fact that there is no need to repay is a huge advantage.
- Financial institution borrowing
The second is “financial institution borrowing.” As with self-financing, financial institution borrowing is used in many opening cases. The advantage of using financial institution borrowing is that it is relatively easy to use compared to other methods, and there is also an advantageous system that limits the start-up funds. You may also receive advice on your business through the borrowing process. However, there is of course a “screening” for borrowing. If you do not meet the standards of the financial institution, you will not be able to get a loan. Also, unlike self-financing, monthly repayment including interest is required.
The third is to “get an investment“. The mainstream method was to receive investment from venture capital and individual investors, but recently, new investment methods such as crowdfunding have also been used.
It is used for projects that cannot be handled by financial institutions or when you want to raise a large number of funds. Also, unlike financial institution borrowing, there are no requirements for self-financing. The conditions will be adjusted individually.
A solid plan is required to receive investment at the time of opening. As an investor, it is an “investment”, so it is of course necessary to consider the merits of the investor.
The fourth method is to use “subsidies/subsidies”. Although it is irregular, subsidies and subsidies related to start-up funds may be solicited. Subsidies and subsidies have a “purpose of the grant” to the last, and can only be used if the business meets that purpose. In addition, when using it, a screening will be conducted in accordance with the application guidelines.
It takes time to complete the examination procedure, and basically, the subsidies and subsidies are “deferred payment”. In any case, it is necessary to prepare own funds and borrowings as immediate funds.
It takes time and effort to use, but if there is a system that suits your business, it is a good idea to consider it as a means of raising funds.
- Borrow from relatives/friends/acquaintances
Based on the above four “own funds”, “borrowing from financial institutions”, “investment”, and “subsidies/subsidies”, we may raise funds by the method of “borrowing from relatives/friends/acquaintances”. In case of an emergency, your own network will help you. It is not easy to explain “your personality” and “the background to the opening of the business” to others. When you apply for a loan, you may not be able to fully convey your personality, the future of your business, and the need for funds in a short period of time. If you are a relative or friend of mine, you know you well, and if you decide that your business is worth the money, you may be able to help.
However, it may cause trouble later, so when procuring, it is better to leave it in writing and confirm the contents with each other. “There is also a courtesy to close friends.” Especially when the business is on track and profitable, something is said. To protect yourself, keep the contract details firmly.
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When thinking about raising funds, it is easy to think first of all about “how much you can raise”, but in principle, there is a form of business and you raise funds accordingly. In particular, when relying on the funds of others, such as borrowing and investment, it is necessary to clarify “what kind of business you are going to do” and “how much money you need for that business”.