Ways to Fund and Finance a Business

Are you looking to set up a business but having problems with how to finance it? You’re having problems on how to get the capital funds to set up a business? There are several ways to finance a business. Find out how to source out capital funds for your business.

To start a business does not necessarily mean that you always need to have cash as capital. Cash is not the only factor that you must consider before you decide to start a business venture. You will find several ways to finance a business that indeed, cash may not necessarily the sole factor needed to start a business

Here are some ways on how to find source of capital funds to finance your business:

Funds from Personal Savings. This is probably the easiest way to finance your business. You only need to convince yourself that you have an excellent business idea. According to a survey conducted by some entrepreneurs, 90% of the aspiring entrepreneurs aged 21 to 35 years old want to start their own business within one to five years using their personal funds or savings.

Some early retirees are cashing in their benefits and using the proceeds as capital funds for a business. Some are taking advantage of early retirement programs to get hold of seed capital. According to a research, Col. Sanders of Kentucky Fried Chicken (KFC) started his business after retirement at age 65.

Many of would-be entrepreneurs never had a business before and believe that start-up capital must come from their own pockets. If this is your planned source of capital funds, you should immediately start systematic savings program to build up your capital base. Remember that the younger you are, the more you can risk your capital funds in a business.

Funds Borrowed from Relatives and Friends. Another way to finance your business is to borrow capital funds from your friends and relatives. Take note to make it formal and legal. Treat your relatives or friends as you would a banker. Explain in writing how you intend to use their funds and how you plan to pay them back. Perhaps, if you offer your relatives and friends a stake in your business, the may be more willing to lend you money. Another good strategy is to borrow smaller amounts among several relatives or friends. It is easier to borrow P1,000 than P5,000.

Funds from Bank Loans. Another way to finance your business is to tap most banks for a small business loan. Bank loans are generally supported by collateral. But some banks can arrange for you to have your loan guaranteed without collateral. Here in the Philippines, there are many private and quasi-government loan guarantee funds for small businesses. Among them are the Quedan Rural Credit and Guarantee Corporation, Small Business Guarantee and Finance Corporation, and the Guarantee Fund for Small and Medium Enterprises. Ask the lending institution about these loan guarantee programs.

Funds from Credit Cards. Another way to finance your business is to use your credit cards. Some bank credit cards have high loan limits that will enable one to start a micro or small enterprise. But they do require a certain minimum income requirement for such a high credit limit.

If you are currently employed and plan to start a business soon, I suggest that you apply for several credit cards now that you are still “credit-worthy,” since you still have a job and a steady source of income. Look for the one with the minimum fees in case of finance and penalty charges.

Funds from Venture Capitalists. Another way to finance your business is to take a loan from venture capitalists or money lenders. However, this can be a little expensive, interest wise. A lot of individual lenders may only be willing to lend money with collateral or a postdated check and require between 3% to 5% monthly interest.

Some may even want part ownership of your business. But if you have a business venture whose projected profits more than cover your interest and other expense payments, this funding source can be fast and easy to obtain without too much paperwork provided you must have a good business project.

Funds from Cooperatives. Another way to finance your business is to take a loan from cooperatives. Cooperatives are main movers in providing small loans to micro-businesses such as market vendors.

One example of a cooperative-type source of funds to finance your business is a well-structured “paluwagan”. A paluwagan is a pool of funds led by a strong and reputable acceptable to all the members. Each member can loan from the fund but he or she must pay it with interest for the benefit of other members.

Finance it thru Labor. Another way to finance your business is thru the use of your own labor. In this way of funding your business, you can start a business by becoming a middleman or agent for the type of business you really want to start. For example, you can be an agent for an insurance agency where you bring in jobs as an independent agent on commission basis and later open your own agency.

Funds from Pawning or Selling Valuables. To many, this way of financing a business is a last resort. Do you have a valuable watch, a mobile phone, laptops, or anything that has value and that can be pawned in a pawnshop? Then pawn it if you still need it. If not, then you can look for buyers and sell them and use the proceeds as capital funds for your business.

Do you have other ways and means to fund and finance a business? Share them below so that readers will keep informed just in case they want to start their own businesses.

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Tyrone is a passionate financial literacy advocate. He started this blog on November 2008 when he watched The Secret which talked about Law of Attraction because he wanted to become a millionaire and wanted to know how a millionaire acts. At the age of 26, he achieved his first million. To find out more about him, click here or follow him at Instagram

12 responses on “Ways to Fund and Finance a Business

  1. i totally agree tyrone with your posts. actually, for startups credit card is a major advantage and source of funding. bank loans are usually not accessible to startups; i have two bankers and they both require that a client should put in a minimum of 500k as collateral even for just a revolving credit line. well, it’s for people who are expanding, not starting up. credit cards on the other hand is like bank debt, but on a smaller scale. it’s a good way to fund the business in ways like purchasing inventory (this could provide the entrepreneur the benefit of a longer operating cycle), as well as smaller bills of the business.

  2. When I was in Business School I bumped in two businesses who were selling pot to finance their licit business activity.

    One was installing satellite antennas to steal satellite signal, and the other, I don’t remember.

    Satellite signal is no more available for stealing, the decoders need a de-scrambling card for the picture to be viewable.

    There are many ways to invest in a business, and part of doing business is, actually looking for the ways you and your partners, as promoters, can manage to finance the business, the project, or the development of the idea that might someday become a real business.

    I must say that many times, for people with money, financing a business often amounts to finding a partner with money. This goes for engineers, doctors, lawyers and the like. They have the particular knowledge, skills, idea(s) and relations, and they’ve been able to convince someone with lots of money to invest on their project rather rather than, or besides, investing elsewhere.

    Relations are important, but the way to get relations, i.e. University degree, culture, taste, general and specific knowledge have a role to play.

    These people will spend a significant part of their life on a project with the investor and the investor will also. So it’s better if the people involved are interesting and get along easily together.

    Me, what I invest in my business is my time, because it’s what I have in the most quantity.

    My resource is the information on the internet which is something almost infinite.

    And my job is to find information people are looking for and to give them in the best way they can use it for the purpose they have. I have lots of competition doing this and I must find how I can be ahead of this competition. It’s very interesting to be in my position because I can see the world changing in real time.

  3. Useful post, lots of ideas here. Also people put a lot of their own free labour into their business and need to take into account the cost of their own time. It’s good to hear about KFC being started after retirement – there’s hope for us all then!

  4. sir pls make a sample letter of investor capital agreement or a letter asking friends to invest in our business. thanks

  5. Most Philippine banks will only provide business loans for businesses with more than 5+years of profitable operations, in additional to collateral and on top of that up-to 18% per annum interest rates. Its more practical to just use personal savings, since taking loans from banks will already set a higher cost of capital (you would need to have a decent ROI to meet the 18% interest rate from banks).

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