First, to put the odds on your side, it is essential to prepare a solid business plan in order to obtain adequate financing. It should detail the financial needs of your SME in the short and medium term and describe the intended use of the requested financing.
Once the business plan begins, where do you turn to find the money? Here is an overview of seven sources of early-stage investment for small businesses and start-ups.
Ideally, the first investor should be the entrepreneur himself. This is a sign of serious commitment to his project.
The owner can thus use his personal savings to provide part of the funds necessary to start his business. He can also give personal assets as collateral, namely property that he owns as an individual.
Here, it is a question of the financial support of his close relations: money lent by the spouse, the parents, the members of the family, or the friends. This is called love money in English. This “friendly venture capital” or “patient capital” consists of equity or a loan based on personal relationships of trust rather than conventional risk analysis.
The repayment terms are generally very favorable to the project leader: the money is repaid as the profits of the company are generated, usually without interest or goods required as collateral, without automatic participation of the lenders in the SME, and with the possibility of debt relief.
Wealthy individuals, experienced leaders in their field, or even retired business executives with a large address book, “angel investors” directly inject funds into start-up SMEs, either continuously or only in the early stages of their development. The amount invested varies between $25,000 and $100,000.
In return for the risk they take in financing a very young SME, they often ask to sit on the board of directors of the company and demand a guarantee of transparency on the part of the entrepreneur.
Working with angel investors gives entrepreneurs access to a vast network of experts who help them broaden their knowledge and skills in marketing or building sales teams.
Unlike the business coach (paid for his services) and the mentor (who only volunteers his time), the angel investor gives both time and money
This source of investment is generally sought after by start-ups that can occupy an enviable position in high growth markets (information technology and biotechnology, for example), with greater capital needs and access to more difficult debt financing.
The contribution is provided by so-called venture capital companies. The capital is less “patient” because its repayment terms are more stringent.
Investors here seek active but temporary participation in the management and equity of the SMEs they finance. This participation is generally done in the form of the purchase of shares or securities. Venture capital is usually invested over a period of 7 to 10 years and is typically around $1 million.
Grants, secured loans, and online business loans help evolve a business model and validate products or services, increasing the chances of securing the venture capital funding needed for commercialization.
Many financial institutions offer financing to businesses in the start-up phase. Banks favor entrepreneurs who provide personal collateral, have an excellent credit history, and have a solid business plan.
For entrepreneurs in business for more than six months, National Bank offers an online solution giving access to financing in just seven minutes. This alternative to traditional channels is based on ten simple questions and a check of the credit file. Upon approval, the loan sum is paid into the bank account within 24-72 hours. With financing in his pocket, the entrepreneur can purchase equipment, expand his business or hire a new employee. The latter will thus be able to complete a business project more quickly.