How to Succesfully Finance Your Business Start-Up

For the successful start-up of a company, the financial start-up capital is crucial. For this reason, in this article we will provide an overview of various legal bases of private and public forms of financing and their risks. We do not go into public funding and present these funding programs and their application requirements in another specialist article.

So that you know what costs to expect when starting a business, you need to calculate the costs of setting up a business in advance. When you know what your business and personal expenses are, you can take the next step and see how you can raise the money to do so.

1) How do I finance my business start-up?

2) What do I have to consider when setting up with equity capital?

3) How much equity do I need to start a business?

4) What do I have to take into account when considering partner equity?

5) What is the difference between equity and debt?

6) What do I have to pay attention to when setting up a company with outside capital?

7) How do I get outside capital to start my business?

8) How do I get a loan from the bank?

9) How do I attract financiers for my business start-up?

How do I finance my business start-up?

Basically there are two different ways to pay the expenses. On the one hand, you use your own reserves and finance your start-up with equity. In addition, outside capital can be taken from other donors to cover the costs. Healthy companies should always have a reasonable ratio of equity and debt. By funding the effect of low equity may also be reduced and the ratio thus improved.

 What do I have to consider when setting up with equity?

If you want to finance your business start-up with equity, you make funds available yourself to be able to carry out the activity. But private and tangible assets can also be contributed by others as a contribution to your company and count as equity. For this, certain criteria must be taken into account and fulfilled:

 There are no conditions attached to equity. Should you file for bankruptcy with your company, this deposit is not secured and will be irrevocably lost.

So that the company can plan long-term with this money, the collected equity is available indefinitely or at least for a very long period of time. Those who want to terminate equity capital have to overcome high hurdles. The regulation is set out in advance in the articles of association.

There is no interest on equity. Anyone who gives a company money so that it can operate receives a pro rata remuneration from the profit.

How much equity do I need to start a business?

The amount of equity depends on how high the running costs for the entrepreneurial activity and for financing private expenses are. After you have clarified the costs of starting a business, you should use as much free funds as possible for financing.

The higher your equity, the greater your personal risk that you are taking on when setting up a business. However, this key figure gives banks the security that you are really convinced of your project and increases the likelihood of being able to tap other sources if necessary. So that you know whether your equity is sufficient to set up a company, you have to compare this with the calculated start-up costs.

What do I have to take into account when considering partner equity?

If you were able to convince other partners to provide you with equity, they naturally expect a reward for their performance. This occurs either as payment for their work as an entrepreneur if the partners also assume entrepreneurial responsibility. Or you receive a share of the profits of your company. In this case you should contractually determine the amount of the individual shares in advance.

Also note that partners can resell their shares. It is therefore essential to regulate the conditions beforehand and agree on a right of first refusal and a right of veto. This gives you the opportunity to turn down potential buyers.

What is the difference between equity and debt?

All private and tangible assets that are brought into a company as deposits count as equity. Accordingly, the term includes not only your own financial resources, but also provisions from other donors. It is important to meet certain conditions that we have listed under the second point. Anyone who participates in the company with equity capital thus acquires shares and receives a pro rata remuneration from the profit.

 All other funds that do not count as equity capital are considered debt capital. The debt capital supplements the equity accordingly, so that the company always has the necessary liquid funds available. In contrast to equity, the creditors do not receive any shares as consideration. Those who provide the company with money in the form of a loan are instead entitled to the loan interest. So if you use borrowed capital in the form of a loan from a bank, you have to repay this until the full repayment in the followin