Selling a service rather than a product doesn’t require large start-up costs. It’s a business you can start on a shoestring budget. As you can grow your business without financing until it becomes self-sustaining. Whereas a business centred on a product or products in most instances requires outside funding. And funding can come in many forms.
Raising money from your family and friends
Asking family and friends is the most common way to finance a start-up. But when you turn loved ones into creditors, you’re risking their financial future and jeopardising important personal relationships.
A classic mistake is approaching friends and family before a formal business plan is even in place. To avoid it, you should supply formal financial projections, as well as an evidence-based assessment of when your loved ones will see their money again.
This should reduce the likelihood of unpleasant surprises. It also lets your investors know you take their money seriously. You also need to seriously consider how the arrangement will be structured. Are you offering equity? Or will this be a loan?
Perhaps most importantly, you need to emphasise the risk involved. Offer up a strong business plan, but remind them there’s a good chance their money will be lost. It’s better to mention that upfront to Aunt Gladys rather than avoid it altogether and have to discuss it when and if it happens.
Get a Microloan
The lack of a credit history, collateral or the inability to secure a loan through a bank doesn’t mean no one will lend to you. One option would be to apply for a microloan, a small business loan ranging from R500 to R25 000. Microloans are often so small that commercial banks can’t be bothered lending the funds. Instead of a bank, you need to turn to a micro lender.
The most popular type of loan for start-ups is one with a micro lender. The positives of applying for a loan with an alternative lender is that your business doesn’t need to have a perfect financial status and the loans can be approved almost instantly. The downside of using an alternative lender though is that interest rates can be significantly higher than those charged by a bank.