Important Funding Programs and Financing Options for Founders
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| Photo by Markus Winkler on Unsplash |
Hanifmr.com - How do I finance my start-up project? What funding programs are there? Are they suitable for me? Can I even be funded?
Questions about questions that are anything but easy to answer. That's why I researched for you.
The result is an overview of general funding opportunities that could be considered for your start-up project.
Also in this post: 'How good are the conditions for founders in Germany?' We asked. The SiN readers responded. The evaluation follows at the end of the article.
Status Quo: The Start-Up Climate in Germany
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| Important Funding Programs and Financing Options for Founders |
In Germany, more people are starting a company again. According to the KfW Start-Up Monitor 2015, the number of founders rose to 915,000 in 2014. An increase of 47,000 compared to 2013.
But clouds are gathering on the horizon again. In 2015 the total number of founders is expected to decrease again.
The biggest pain in the stomach continues to be the financing of your project. Also one of the most common reasons why founders fail. There is not enough money to realize your plans.
As a founder on the Internet, you often do not need to invest huge sums of money. Maybe some money to bridge the first few months or finally to get the job done. According to the KfW Start-up Monitor 2015, founders spent an average of 9,100 euros (2013: 11,000 euros) on their start-up project in 2014. Peanuts for the banks and therefore not that easy to come by.
In addition, credit institutions are demanding more and more information and are expressing security concerns more frequently from small and medium-sized companies. That doesn't exactly make the start any easier.
Good for those who are not dependent on financial support. In a direct comparison between full and part-time entrepreneurs, start-up capital is much more important for the former than for the latter. Full-time entrepreneurs not only use financial resources more often but also in larger amounts than part-time entrepreneurs.
Important Funding Programs for Founders at a Glance
The dream of your own company. You are ripe for the foundation. Have you thought about everything carefully, the framework conditions are right and the business idea has been found, checked and the competition and target group have been extensively analyzed. Very well.
Now the first important hurdle could follow the financing.
A loan? Support from family and friends? Does the Federal Employment Agency help? Is other funding available?
In almost all cases, the involvement of an expert is also essential for a successful start-up. And even after the establishment, accompanying coaching makes sense and can help you to continue to run your business successfully.
In the following, I present the most important funding for start-ups. I do not claim to be complete. To depict all available information would go beyond the scope. So let's concentrate on the essentials:
At a Glance: Important Funding Programs for You as a Founder
- KfW Start-Up Coaching
Preparation is the be-all and end -all. Even when setting up a business. The KfW founder coaching is a mix of coaching and counseling. This is a nationwide program with which entrepreneurs, company successors, and young entrepreneurs are supported by intensive advice up to 2 years after their establishment. Regardless of whether you are self-employed as a full-time or part-time job. The advisor helps with economic, financial, and organizational questions. For example, you can optimize your business plan, prepare financial discussions with banks or develop a controlling system.
Depending on the federal state, you will receive a grant of 50% or 75% of the consulting fee, with a maximum of EUR 4,000 (net) in each case. You can find out here which issues KfW start-up coaching is not suitable for. In the KfW Consultant Exchange, you will also find all consultants who are approved for start-up coaching in Germany. - StartGeld ERP Start-Up Loan
Entrepreneurs, freelancers, and SMEs that have not yet been active on the market for less than 3 years can use the StartGeld ERP start-up loan from the KfW banking group to finance investments and operating resources (machines, computers, buildings, furnishings, company vehicles, etc. ) are supported with a loan on favorable terms. The maximum loan amount is EUR 100,000.
Anyone who initially wants to set up a part-time business must, at least in the medium term, be geared towards full-time employment to benefit from the ERP start-up loan StartGeld. Since KfW grants the loan exclusively through credit institutes, you can apply to a credit institute of your choice. - My Microcredit
If you want to start your own business online, you usually don't need a lot. The necessary start-up capital is usually correspondingly low. Microcredit meets this requirement. With the Microcredit Fund Germany, the federal government wants to improve access to capital for start-ups and small businesses. In small steps, you can take out several small loans, for example only 1,000 EUR as an initial loan.
A second loan can be applied for if the first 6 months have been repaid without any problems. A maximum of EUR 20,000 microcredit is possible. The interest rate is pretty high at 9.9%. In addition, an acquisition fee of EUR 100 per loan must be paid. In many cases, references or small guarantees from the personal and business environment are necessary. Women and migrants, in particular, should benefit from this project.
If this loan could be an option for you, you will find the right institutes that you can contact here. You have to carefully weigh up whether a microloan is worthwhile for you due to the high-interest rates. - Start-Up Grant
The foundation grant is used for securing your livelihood and social security. Provided you start of unemployment and are entitled to unemployment benefit for 150 days before starting self-employment.
You do not have a legal right to the start-up grant. It is merely a discretionary exercise that is carried out in two phases. In the first 6 months, a subsidy equal to the last unemployment benefit received and EUR 300 for social security are granted. After that, EUR 300 can be granted for social security for a further 9 months if you can prove that you have intensive business activity and full-time entrepreneurial activities. For the promotion, you need to apply for work before taking up self-employment in your local competent agency. - Entry Fee
Entry money you get, if you have bad placement opportunities in the labor market and unemployment benefit II are referring, that is no longer entitled to start-up grant is there. It is a discretionary service for those who have been self-employed or who want to become self-employed. The start of a self-employed activity must be full-time.
Depending on the length of unemployment and the size of the community of the need for job seekers, grants of up to EUR 5,000 are possible. Loans beyond that too. The funding is valid for a maximum of 24 months and must be applied for from the responsible providers of basic security. You can also get more information from your Federal Employment Agency. - Advice
The advice market for business start-ups can hardly be overlooked. Many offers are even free of charge. Whether that is always a good thing is left to be seen. As a founder, you will receive free advice from the chambers of industry and commerce, for example. There are, for example, short seminars lasting several days that are offered directly by the Chamber of Industry and Commerce or a partner for a fee. There you can get a crash course in the most important commercial topics. This is not going to make you a pro. But it raises awareness of all important issues.
Advice from the chambers of crafts is also usually free and especially suitable for the needs of craftsmen. Freelancers can take advantage of free advice services from their respective professional association or their chamber. The Federal Association of Liberal Professions (BFB) also advises founders. Examine the quality of these mostly free services critically. The quality often stands or falls with the individual consultant. - Erasmus for Young Entrepreneurs
You have probably stumbled upon Erasmus somewhere. The commonly known Erasmus program is an EU funding program for study-related stays abroad at other universities and internships abroad. Erasmus for Young Entrepreneurs is new. This cross-border exchange program aims to promote the exchange of experiences, mutual learning, and networking between companies in the EU. As an entrepreneur, you will do practical training at an SME in another EU country. Experiences, ideas, and information should be exchanged and support you in developing your start-up project.
You can also take part if your company is no longer than three years old. You will learn from experienced entrepreneurs, gain access to new markets and be able to initiate international collaborations. Travel and subsistence expenses are subsidized by the European Commission. Here you can find local switching offices. - The Funding Database
You can get an even more comprehensive and up-to-date overview of the federal, state, and EU funding programs in the funding database of the Ministry for Economic Affairs and Energy.
By selecting your funding area, who is eligible for funding, the funding area, and the type of funding (grant, loan, etc.) in the funding assistant, you can specify your research and get to the right funding program step by step. - Family and Friends
If you don't need a lot of start-up capital, you can also ask friends and family for support. That wouldn't be an option for me. I would put enormous pressure on myself to make sure the money was paid back on time.
Ultimately, however, you have to decide for yourself and in consultation with the people concerned. - Business Angels
Business angels are wealthy private investors who not only provide you with capital but also help with their know-how. In addition to those who share their knowledge but otherwise discreetly hold back, there are especially those who like to have a say in important decisions. You will pay for the commitment by giving up company shares and thus making your start-up helper a co-owner. They rely on the fact that their shares will increase significantly in value through good company development and that they will then be able to sell them at a profit after a few years.
Investments are mainly made in business ideas that are superior to the competition and cannot be imitated quickly. For this, the business angel usually digs deep into his pocket. Only recently, the investors of Die Höhle der Löwen auf Vox wanted to invest 2 million euros in the math app Math42 by the two brothers Maxim and Raphael Nitsche. If the company hadn't belonged to the father. Interested too? Then you will find your business angel z. B. via the Business Angels Network Germany. - Incubators
Incubators are facilities or institutions that accompany you on the way to starting your own business. Your job is to create optimal conditions for you so that you can successfully start your own business. In practice, this means that you are advised and coached or a shared space or entire office space is made available to you. IT support and marketing services are also conceivable. The best-known example of an incubator is Rocket Internet.
Other well-known incubators: ProjectA, Hanse Ventures, or Team Europe. - Accelerator
An English term that means nothing more than 'accelerator' in German. These are institutions that support startups, especially in the start-up phase, through intensive coaching and thus can significantly accelerate their development. The type of support is very similar to that of the incubator. However, if you apply for such a program, then an uncompromising selection will be made.
Those who succeed will find themselves in a kind of boot camp, in which the company idea is to be intensively developed into a market-ready product or service. After a few months, the whole thing ends in so-called demo days. Then the company is presented to the investors. In return, you give company shares and thus share the accelerator or incubator in the future profit distribution. Here you will find German and international accelerator programs. - Crowdfunding
The search for capital for founders in the e-commerce business is no easy matter. If you don't necessarily want to contact dubious investors after sobering refusals from banks or even get in the towel, you could find an interesting alternative in crowdfunding. The idea behind it is simple. Instead of going in advance and z. B. to develop a product completely with your financial means, one asks for financial support from potential buyers and interested parties.
If there are enough people who would like to have this product and if at least the targeted amount of money comes together, the implementation of the product can begin. This is also a very good way of finding out whether there is any interest in your business model at all. You can find an overview of crowdfunding platforms here. - Bank Credits and Loans
Back to a thoroughly classic way of financing your start-up venture. Credit (shorter-term, lower sum) or loan (longer-term, higher sum). Before doing this, you should think carefully about how much money you need and record your result in your business plan.
You must also be able to show equity or collateral. The latter can be a piece of land, a condominium, a car, life insurance, a building society loan agreement, or, for example, the salary of a surety. However, be aware of what it means to offer this collateral and the consequences that can have. If you cannot show equity, a private guarantor can step in for you. But this must also be able to offer security.
It's not that easy to keep track of all the different funding opportunities.
On the one hand, this is because there are not only Germany-wide but also individual funding programs at the EU and federal state level. New funding programs are added. Existing ones are pulped. And then there are countless other options such as incubators, business angels, and the like.
You can also use the funding check for founders and self-employed people to find out which ones are suitable for your purpose and where you need to apply. Simply enter the current status of the company, select the state and answer the question about starting unemployment.
Another interesting piece of information on the subject from the KfW Start-Up Monitor 2015: When founders used financial resources, in two out of three cases it was solely their funds. The rest was provided by external investors such as banks, private investors, or even family and friends. Innovative financing models such as crowdfunding are still rarely used.
Survey Evaluation: How Good are the Conditions for Founders in Germany?
In a survey, we asked all SiN readers how well they rate the requirements for founders in Germany.
Here is the result:
How good are the requirements for founders in Germany?
- Poorly. Legal risks, tax chaos, bureaucracy ... (56%, 68 votes)
- It's going ok. Fewer and fewer grants and difficult financing. (20%, 24 votes)
- Very well. The environment is right and there are also subsidies. (14%, 17 votes)
- No idea. (10%, 12 votes)
Number of participants: 121 (1 vote)
Most people think that the conditions for founders in Germany are poor. Germany united in a bureaucratic country. I also had to find out how laborious it can be to go to the authorities, submit applications or prepare tax returns correctly. In some cases, there was even no uniform opinion on certain topics in various official institutions. In addition, legal risks are mentioned and general tax chaos that hardly anyone can see through.
After all, 76% believe that the conditions for founders in Germany are more or less good to very good. This assessment is also conveyed by the KfW Start-up Monitor 2015. The proportion of start-ups with financing difficulties increased afterward and again reached the high of 2012 at 20%. Despite the mostly relatively small financial requirements, founders find it difficult to gain the trust of donors. Microloans are not particularly attractive for banks because of their high fixed costs.
Conclusion
The funding for start-ups is roughly divided into three areas:
- Promotion of livelihood,
- Grants for advice and coaching
- Financial support through credits, loans, guarantees, etc.
You must approach the support and financing options in good time to meet any deadlines and not to lapse into stress and hectic. The sources presented in no way replace professional advice or coaching in which your requirements are explicitly addressed.
Germany is not a land of milk and honey for founders. Grants are cut again and again and credit institutions are skeptical. Nevertheless, there are some funding opportunities that founders in other countries can only dream of. Take a close look at which grants could be possible for you as a prospective self-employed person on the Internet and get detailed personal and professional advice. The experience and knowledge of a consultant or coach can save you a lot of trouble and time in an emergency. The first point of contact is the Federal Employment Agency or the IHKs.
What is your experience? Are there any other funding opportunities that you have used on your way to self-employment? Let us know.
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