Getting To Know Start-Up Financing – At this time, start-up businesses are being loved by businesses using information technology as a basis for their products. In funding his business, a start-up entrepreneur has his characteristics. Some use their funds, some lend capital funds to creditors to run their businesses. Here we present, types of Start-Up Financing.
Types Of Start-Up Financing
Debt Financing is a type of financing that usually makes loans or credits with certain interest rates to certain institutions or creditors. In this case, the institution that is usually used as a creditor is a bank. To be able to take out a loan, an entrepreneur must make a business proposal that contains a business report and the funding needs needed for the start-up business he is running.
The creditor will usually see the condition of the business based on the financial statements of the business for a certain period. In providing a loan, the lender will set the interest rate and maturity date for the loan repayment. However, this type of start-up financing is rarely taken by start-up entrepreneurs because the risk is too big for them.
Investor financing is a type of financing carried out by private parties or investors for a business. This type of financing can be started from a small scale, namely through family or friends, to a large scale, namely through large investors. In this financing, start-up entrepreneurs and investors will agree on funding for a certain period. Investors will later act as shareholders.
Funds from investors are different from borrowed funds from banks. An entrepreneur will use funds from investors to spin his business. In a certain period, investors will get profit-sharing or dividends from business profits run by start-up entrepreneurs. Start-up financing is widely used by many start-up entrepreneurs. But usually, entrepreneurs will look for investors after the business has been running after several months of starting.
Bootstrapping is financing that is carried out independently by entrepreneurs. This financing is mostly done by start-up entrepreneurs who are starting their businesses. The financing comes from the entrepreneur’s savings. However, to do self-financing, an entrepreneur must plan his business activities. To start bootstrapping, an entrepreneur will usually evaluate his assets and savings.
After that, he will do financial planning with the principle of doing many things with little expenditure. Personal funding usually does not last long due to a lack of resources. However, if a start-up entrepreneur can make good financial and business planning, the expenses he makes will return with the results of the work he is doing.
Aid Or Grant
This is one of the most popular startup financings and is much sought after by entrepreneurs. Currently, both the government and the private sector have issued many assistance programs and capital grants to start-up entrepreneurs. Some of the capital assistance is given directly, but some are through start-up competition.
Again, in applying for capital assistance, an entrepreneur is required to make a proposal that contains a business plan, a business financial report, and a funding plan. Another advantage of this pathway, apart from getting business capital assistance, entrepreneurs also have the opportunity to get a business incubator program and mentoring with existing practitioners. This is what makes financing through the capital assistance channel very attractive to start-up entrepreneurs.