The road to creating a successful business can be long and winding. The paths of other business owners don’t always have to match yours, but you can always learn from their past experiences. But setting one’s industry and niche aside, the first step to building a business is to figure out where to source capital.
Business financing is crucial to acquiring the resources and people you need to ensure your business ideas bloom to their full potential. This guide goes over the different financing options available to help you get started on your entrepreneurial journey.
Business Financing 101: How to Fund a Business in the Philippines
Thanks to innovations in the country’s financial landscape, aspiring business owners now have several funding options. All funding options have their fair share of pros and cons; the best one will greatly depend on the structure of your business.
A helpful tool to determine which financing type you should bank on would be a return on investment (ROI) calculator. By running your potential capital loan amount through the ROI calculator, you can get an accurate projection of your ROI based on data points you already have or can estimate.
To ensure a smooth path to your startup, here are the ways you can get capital for your business!
- Bank loans
A fixed rate or term loan spreads the loan payments throughout a set period agreed upon by the borrow and the lender.
Banks offer loans specifically meant for businesses. According to Robinsons Bank, they’re called commercial loans and are broadly divided into two types.A credit line is like a credit card for your company, allowing you to borrow up to a limit with interest scaling of the amount borrowed.
Both kinds of loans can be either secured or unsecured. A secured loan means that you have put up something of the company as collateral in the event of a default, generally property or equipment. Collateral lowers the bank’s risk, which usually means you can get larger loans with lower interest rates.
Unsecured loans are the opposite: no collateral means smaller loans and higher interest rates.
Both types require a lot of paperwork and can take a long time to set up, but they’re a reliable method for small businesses to acquire funds.
- Government loans
The government has set up lending systems as well. For example, the Social Security System (SSS) offers a loan based on your salary, which you can find in their website. This type of loan is ideal for smaller business plans that only need a little extra with their savings to begin a venture.
Other government branches also offer loans. These can be easier to acquire than bank loans, particularly if your planned business aligns with the department. A farm business, for example, can more easily get a loan from the Department of Agriculture. - Family and friends loans
Why go through the trouble of asking strangers for the capital you need? Your family and friends might be willing and able to provide the necessary money, and they already know you, which skips many of the required steps in the previous two sources.
While getting a loan from family and friends is convenient, money-related conflict can be hard to dodge, so you must be careful. If you’re confident with your idea and have built a solid foundation of trust between your friend or family member, this can be a much more accessible method than bank or government loans.
- Crowdfunding
Crowdfunding is like an election. You present your ideas to people—usually through websites like Kickstarter or GoFundMe—and they “vote” with their money if they like your pitch. Two examples of bonuses are early access to your products and exclusive content for supporters. You can also offer rewards for donators.
This method eliminates the need for repayment, but it can take a lot of work to gain enough traction to reach your goal. After all, there are many candidates but only a few winners in an election. You’re competing with thousands of other people and businesses to gain people’s attention.
- Government funding (grants)
The government incentivizes people with good ideas by offering grants. Most commonly, these are for researchers or non-government organizations, but business grants also exist. The Department of Trade and Industry assists with many types of businesses, though they can be challenging to acquire as you need an extensive business plan. - Angel investors and venture capitalists
According to J.P. Morgan Wealth Management, angel investors are wealthy individuals who invest in startups and small companies with exciting ideas in return for partial ownership of the company. Venture capitalists such as Kickstart Ventures by the Ayala Group of Companies are groups or firms that do the same, but generally at a larger scale and require more operational control.
Like government grants, this method requires that you sell your business plan to potential investors, though usually for larger amounts. In return, you must be willing to give up some ownership and operational control, which can be a downside.
- Business partnership
Business partnerships are more personal than loans. You ask someone to invest not only money but also their time and effort into the growth of your business. Like venture capitalists, business partners also claim part-ownership, but they’re much more dedicated and are likely with you from day one.
The Next Step for Your Business
You can use more than one method for financing and starting up your operations, so make sure to use all the available resources to make the right plan. Properly securing the finances you need is a significant first step to owning a thriving business in the future.
Once you’ve addressed the financial needs of your business, the next step would be to focus on its other aspects, such as customer loyalty. If you’re planning to build an online store in the long run, do know that Rush provides an all-in-one eCommerce solution to help you plan, grow, and take your business to the next level!
Interested? Get in touch with our Sales Champs and book a demo today!
