The fact is that financing your dream business could turn out to be the most challenging thing ever especially if you are a young entrepreneur with a limited knowledge of entrepreneurship.
What every young entrepreneur should understand is that there is more to starting a new business that the brilliant business idea itself.
Having developed a good business idea, you still have to develop the motivation to make the ideas happen.
No successful entrepreneur will ever tell you that it’s easy to get your business idea financed and hit the ground running.
The painful fact is that it’s hard to get a business idea bankrolled either by some certain individuals or a bank.
Good read: How To Develop Good Business Ideas And Motivation To Realise Your Goals
Why you need to finance your dream business?
If you have an idea about a dream business you would like to run, you will also need to work out a way to finance it.
The funds needed will vary depending on the type of business, but most businesses will need money to buy equipment and stock, to establish premises and cover marketing costs.
These are costs that will be incurred even before you start trading. Afterwards, you will need a reserve of money to pay the bills, buy new stock and generally keep the business running.
You will also need sufficient funds to cover your usual domestic expenses and bills if you have no income coming in from elsewhere. It may be a while before your business starts making money and so it is important to be sure you are able to live in the meantime.
So how do you finance your dream business?
Assuming that you do not have enough funds available to fund the entire venture yourself, there are many different ways of financing a business.
However, not all of them will be available to you or appropriate for your needs and circumstances. It is important to find the financing solution that best suits your individual business needs or requirements.
Below are some of the means through which you can finance your dream business:
#1). Personal finance / contribution
Your personal contribution towards financing your dream business usually comes first when you are starting a new business. If you are looking for other sources to finance your dream business, the outcome might still largely depend on your personal financial contribution towards the business.
Young entrepreneurs might find it difficult to get financial support for their dream business other than their personal finance. The fact is that most of the young entrepreneurs actually started their business with their own savings before looking for other source of finance especially when the business is ready for expansion.
#2). Bank loan / business loan
One option that many people take is to apply for a business loan. You will need to prepare a detailed business plan to present to the bank, and they will expect to know every aspect of how you and your business will function financially.
The bank’s decision on whether to grant a loan will be based on various factors, including how much experience you have, how much of your own money you are investing and the security you are able to offer for the loan.
#3). Government grants / schemes
Another means through which you can finance your dream business can be through government schemes or grants for young entrepreneurs. So, if you have no security to back your loan, the government’s Enterprise Finance Guarantee scheme might be able to help.
There are also grants available from the Prince’s Trust Enterprise Programme or government business grants. Both of these schemes have restrictions on who can apply but they are worth looking into if you meet the relevant criteria.
If you qualify, the government offers to guarantee 75% of a loan of up to £1 million against default. There is usually a 2% premium to pay on the loan and it cannot be for longer than ten years.
#4). Friends / family / investors / crowdfunding
Another option is to borrow money from friends and family. However, you have to be very careful the way you handle financial supports from friends and family if you don’t want it to affect your relationship with them.
You can also look for outside investor through such avenues as crowdfunding. This is particularly a common and popular trend amongst the entrepreneurs. Crowdfunding can help fund your business idea, big or small.
There are lots of crowdfunding platforms through which you can be able to get your business idea bankrolled. Most of these innovative funding platforms helps project owners’ ideas become realities.
Meanwhile, you would need to agree the level of input an investor would have. Often this would involve giving away a share of the business and a corresponding share of the profits. Wealthy individuals known as Business Angels will sometimes invest in start-up companies and take risks that other investors would not.
What to consider when planning to start a business
Young entrepreneurs should always understand the fact that there are many other factors to consider when planning to start a business.
It’s important that you know and understand your potential market and be realistic about the money you can make. Ask for a second opinion on your idea from someone you can trust and don’t risk everything unless you are sure it can work.
If you are not yet ready to start up your dream business, you could consider the possibility of freelancing through a contractor payroll company.
This can be a way of using any skills you have to offer without the associated financial risks of starting a business.
Good read: Starting A New Business? Good Business Tips You Should Consider For Your Start-Up