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Hanifmr.com - Anyone who wants to become self-employed has a more or less large capital requirement.

Whether you have to invest money in equipment, etc., or just need money for the difficult start-up period, without capital it will be difficult to establish a business.

In this article, I present various financing options for starting a business.

Financing the Business Start-Up

Financing a Business Start-Up - Options and Tips

The internet has greatly simplified business start-ups and enabled new business models.

As a result, you no longer necessarily have to invest a lot of money in office or business equipment. But just having your website needs a certain amount of time to bring in money. So here too, financial resources are necessary.

New online shops, for example, require an initial inventory of goods. More classic offline start-ups need business premises, furnishings, possibly vehicles, etc.

As you can see, many start-ups still require a capital investment that most founders cannot raise out of their own pockets.

Classic Sources of Finance

There are some more classic financing options that start-ups can fall back on.

• Equity
  It is of course very simple if you have enough equity to bear the costs of setting up your own business and/or to bridge the time to profitability.
  
  However, this is usually not the case and younger founders in particular often have only limited financial reserves.
  
  In addition, you should always check whether it makes sense to invest your funds completely, or whether you shouldn't rather keep a “nest egg” in the backhand.
  
  It should also be noted that many business models do not bring in a full-time income from day 1 (especially on the Internet) and you have to live on something until the time comes.
  
  
• Loan
  Many start-ups go to their house bank to finance their business idea. It's a legitimate way to go, but it certainly hasn't got any easier in the last few years. Online banks, on the other hand, often offer good credit conditions, but there is no local contact person.
  
  In addition to extensive documents (business plan, etc.), collateral is required that many cannot provide. A conversation at the house bank provides clarification about the possibilities.
  
  Alternatively, a private loan is conceivable if someone in the family or circle of friends is willing to borrow the money. But one should remember that friendship ends with money.
  
  
• Funding
  Another source of money is funding programs that come in a wide variety of forms.
  
  The watering can be funding of earlier years has been cut back, however, so that today there are above all very special funding programs that are only suitable for certain start-ups.
  
  If you start unemployed, the start-up grant from the Federal Employment Agency could be an option. However, this is much less often given today than it was a few years ago.
  
  The money is also intended more for the cost of living during the first start-up phase than for investments.
  
  To the funding check for founders and the self-employed.
  
  
• Leasing
  Leasing is a special type of financing. Today you can lease production facilities, business premises, equipment and more.
  
  The advantage, of course, is that you don't have a full financial burden right from the start.
  
  Whether it is financially worthwhile on the bottom line must be checked on a case-by-case basis.
  
  
• Partnerships
  Financing through a partnership is also conceivable.
  
  These can be active business partners who bring money into the company or silent partners who only invest money and thereby acquire shares in the company.
  
  However, venture capital is usually only an option for larger startups, but not for “normal” self-employed people.

As you can see from the following illustration, the composition of the funding sources has shifted in recent years:

to statistics

The equity share has increased significantly, which of course also has to do with the fact that the credit institutions have become significantly pickier.

However, these are the statistics on investment finance and not on start-up finance. Nevertheless, one can certainly read trends here.

The “other” sources of funding include those that I present below.

Other Sources of Finance for Start-Ups

The following sources of funding are not as common. Nevertheless, these offer quite interesting opportunities, especially when it comes to setting up an Internet business.

• Personal Loans
  A trend in recent years is personal loans. Strangers give relatively small amounts to an interesting business idea or another financing project.
  
  If enough money comes from many small lenders, then the overall loan is successful.
  
  However, you cannot carry out such private financing yourself, there are specialized platforms for this.
  
  Lendico primarily targets private projects, while Auxmoney * arranges loans of up to 25,000 euros for the self-employed.
  
  These loans are of course especially interesting if you cannot get a loan from your house bank.
  
  You can get a “real” business personal loan, for example, on the new Zencap.de platform. This is specifically geared towards corporate financing of up to 150,000 euros.
  
  From 100 euros, private individuals can finance a startup idea there. Here, however, a promising and special business idea is necessary.
  
  
• Crowdfunding
  Very popular in the USA, but crowdfunding is still in its infancy in Germany. Kickstarter is of course particularly well-known, but German platforms such as startnext.de are also gaining in popularity.
  
  Crowdfunding is not so much a loan variant, but more like a donation. You give a project, startup, etc. money so that they can implement something. Popular examples here are movies, games, technical gadgets, etc.
  
  In return, you usually get certain merchandising items and often of course the finished product. However, there is a certain risk for the donors, as they are not entitled to any return. If the company doesn't bring the product to market, you won't get your money back.
  
  Crowdfunding websites can be quite interesting.
  
  
• Crowdinvesting
  In contrast to crowdfunding, crowd investing gives you shares in the company you are financing.
  
  Providers like seedmatch.de or companisto.com allow entry with very small amounts. But then you have many shareholders who are accordingly permanently involved.
  
  Just as with crowdfunding, if the financing is successful, you pay a fee to the platform.
  
  
• Microcredit
  Microcredit has also become quite popular and is suitable for the self-employed and small businesses. Small but committed business ideas should be made possible.
  
  Mein-mikrokredit.de is a central German platform for this. Behind this are a federal initiative and a 100 million fund. The microloans themselves are provided by regional microloan providers.
  
  The bottom line is an interesting financing option for start-ups.

Although these rather unusual financing options often offer new opportunities to build an existence, it should be clear that you can get money from third parties here as well. The obligations are often at least as high as with a bank loan.

Advice

That is why you should seek advice.

Of course, your house bank (such as the savings bank ) offers advice on start-up financing.

KfW and the IHK also offer consulting services for start-ups. Information on this is available from the regional branches of the IHK.

It should be clear that alternative financing methods should also be based on a solid business plan. Anyone who rushes to obtain outside capital will then quickly find themselves in debt if they fail to become self-employed.

Further information on start-up financing can be found in this PDF brochure from the Federal Ministry of Economics.

Your Experiences

How are your experiences with financing a business start-up?

Did you need outside capital or did you pay for everything out of your pocket?

Related Video: Financing a Business Start-Up - Options and Tips

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