The Young Entrepreneur’s Guide To Funding Start-Up Business
The robust economy of Singapore has opened many business opportunities to entrepreneurs. Its competitiveness in the global market has attracted many foreign investors to test the waters of the Singapore economy.
The promising doors of opportunities have drawn ordinary working adults to try and venture into the business industry. Many have entered retail sectors while others tried eCommerce. However, there are brave and ambitious individuals who try to start up a business from scratch by selling their own products and services.
One of the few challenges these new entrepreneurs and start-up businesses face is funding. Thankfully, there arefinance companies in Singapore willing to provide monetary support to these budding businesses. Yet, some conditions lie behind this assistance. Here is a quick guide for young entrepreneurs to determine which business financing type to choose in Singapore.
6 Ways To Finance Your Start-Up Business In Singapore
Capital is crucial in starting a business. The lack of capital funding hinders the growth of business even before it started. Although there are company loan offers in Singapore, they are something unattainable for a budding business. Thankfully there are other ways to fund your start-up business.
The easiest way to finance your start-up business is through personal investment. Personal investment is also known as “bootstrapping.” Bootstrapping happens when the entrepreneur or the owners themselves finance their start-up business by investing their personal finances like savings, credit cards, assets, and properties rather than getting help from business financing companies in Singapore.
Personal investment is ideal for boosting small businesses; however, it may not be sustainable for business expansion and long-term plans and projects.
Once the business is profitable, entrepreneurs scrap bootstrapping and kick start their business on a larger scale by bringing in outside funding. Outside fundings can be from finance companies in Singaporeor money lending and loan institutions. Many start-up companies focusing on the fleet or transportation sector get funding frombusiness vehicle loans.
Love Money And Crowdfunding
If the entrepreneurs don’t have enough personal finances to fund their start-up business, they can rely on external funding like love money and crowdfunding. Love money is the monetary support from friends, family, and closest kin.
In the same process with finance companies in Singapore, entrepreneurs need to prepare and discuss their business plans with their friends and family members.
Friends and family members can either lend money with or without interest, request equity to the business, and give money as a gift or support.
However, entrepreneurs must consider some factors when tapping friends and families. Usually, your closest kin does not have enough money or is reluctant to risk their personal savings. At the same time, the relationship is at risk.
On the other hand, crowdfunding is a group of small investors willing to fund your businesses. Crowdfunding sites are smaller than business financing companies in Singapore but have less stringent qualifications. Entrepreneurs who do not qualify for car finance for motor traders go to crowdfunding sites. Small investors will either lend you money or request equity from your business.
Angel investors are wealthy, high-net individuals, professionals, or entrepreneurs who directly provide financial support to start-up businesses.
Unlike crowdfunding, angel investors put large sums of their own money in budding businesses as seeds. However, their investments are much lower compared tofinance companies and institutions in Singapore.
Apart from being wealthy, angel investors are usually retired or current business executives and entrepreneurs. Besides the money, they can also provide expert insights into the business. They also have networks and connections to other companies and angel investors. They have less strict qualifications and more flexible deals when it comes to investment or loan applications thanbusiness financing groups in Singapore.
Usually, angel investors put their money in businesses belonging to the industry they are passionate about or when they see a potential return of investment.
If start-up businesses are still reluctant to try venture capital andcompany loan agreements in Singapore with banks and other financial institutions, they can apply for government grants.
Grants are a chunk of money given by the government to start-up businesses. The money can have a little to zero interest rate, depending on the programme offered. Apart from grants, the government also provides subsidies.
However, the grant amounts are sometimes smaller than those offered by business financing companies in Singapore. The competition for government grants is tough as well.
They implement stringent criteria and requirements for start-up businesses. Some private companies and organisations offer grants as well.
The prime purpose of these grants is to boost the local economy and job creation.
A bank loan is the most common way to finance businesses, especially those that belong to small to medium enterprises. The qualifications for acompany loan in Singaporeis quite tough, even for incorporated companies.
Generally, banks and other financial institutions go through the business history, financial statements, track record, and credit record before securing a loan.
They also consider a strong business plan and stability. It may be difficult for a start-up business to secure acompany loan from banks in Singapore.
Although banks offer larger amounts of money, the interest rate for loans is usually high and has a payment timeline.
There are other institutions with less strict requirements and qualifications that loan money. Some commercial and micro-loan organisations provide financial support with little interest. Some institutions offer the best COE renewal loan with a low interest ratefor car owners or start-up transportation fleet businesses.
Start-up businesses and incorporated companies looking for a stronger push when it comes to financing choose venture capital. It is hard to secure funding from venture capitalists.
Firstly, venture capitalists tend to opt for technologically-driven businesses. The sole reason for this is the market opportunity and growth in the science and technology, information technology, and communications sectors are significantly high.
There can still be a few exceptions. Some venture capitalists look for other industries as well. However, businesses outside the technology and communications niche should stand out to win the funding, and the competition for it is usually tight.
Lastly, venture capitalists fromfinance companies in Singaporelook for start-up companies with concrete business plans, promising markets, talented and skilled management teams, and unique product and service niche.
Unlike bank loans, venture capitalists invest money in exchange for the start-up business’ equity and ownership.
There are several ways to get funding for your start-up business. These ways can be narrowed down into two types of financing. These are debt financing and equity financing.
Now, what is the difference between debt financing and equity financing? The other question remaining is, which among the two is suitable for your start-up business?
Debt Financing and Equity Financing: Advantages and Disadvantages
Debt Financing vs Equity Financing
Debt financing is borrowing money from external sources to fund your start-up business. It can be from a family member, friends, micro-lender organisations, banks, and finance companies in Singapore.
Usually,business cash and vehicle loans should be paid within a specific date and time.
On the other hand, equity financing is a process where an individual, organisation, or financial institution puts money into the start-up business in exchange for equity or percentage ownership of the company.
Individuals or organisations who buy the stocks of a start-up business become a shareholder. Shareholders own parts of the earnings and assets of the start-up business.
Angel investors and venture capitalists frombusiness financing companies are examples of equity financing.
Advantages and Disadvantages of Debt Financing
ADVANTAGE: Immediate Money
Loan application has a faster process than equity financing. Usually, the procedure only takes a couple of weeks. Unlike equity financing that requires the presentation of a business plan, the banks’ qualification for a company loan in Singapore relies heavily on the credit rating and capacity to pay.
ADVANTAGE: Business Control
Banks, micro-lenders and financial institutions do not demand equity or percentage of business ownership in exchange forcar finance and loan for motor traders.Instead, start-up businesses have to repay the money borrowed with interest rate within the specific date, depending on the agreement.
ADVANTAGE: Flexible Funding and Payment Method
Banks and financial institutions provide several forms of loan types. There are long-term debts and short-term debts. Debt financing can provide smaller loans for start-up businesses, depending on their capacity. Instalment payment is also available for debt financing.
DISADVANTAGE: Interest Rates
One of the heaviest drawbacks of debt financing is the interest rate. The interest rate of banks and some financial institutions can be high. However, some organisations offer thebest COE renewal loanwith the lowest interest rate. Rates vary depending on the lender and the amount lent.
DISADVANTAGE: You Have To Pay
The borrower has to pay the loan even if there are no profits nor return of investments yet. Lapses in payment could lead to fines, much worse, legal troubles. Start-up businesses should consider the stability and security of cash flow within the company before applying for loans.
DISADVANTAGE: Credit Rating
Although banks andbusiness financing companies in Singapore are more lenient to loan applications, start-up businesses with bad credit records and scores are less likely to secure funding. Apart from banks, there are online lending companies that are less strict; however, their interest rates can be higher.
Advantages and Disadvantages of Equity Financing
ADVANTAGES: Expert Insights
Angel investors and venture capitalists have first-hand experiences and skills in the business industry. They know which start-up business will and will not survive the industry; thus, their stringent selection process. It can be advantageous for a start-up business to be guided by experts in the industry.
ADVANTAGES: You Don’t Have To Pay
Unlike a company loan from banks in Singapore, the funding you will get from equity financing doesn’t have to be repaid. It is ideal for a business expecting a slow return of investments and cash flow. Equity financing also puts larger sums of money than banks, and you don’t have to worry about the payment at all.
ADVANTAGES: Prefers Start-Up Businesses
If banks look for the credit score and track record of an established company, angel investors and venture capitalists prefer to fund start-up businesses as young as two years old. They pay attention more to the concrete business plan, market opportunity and growth, and strategies.
DISADVANTAGES: Business Ownership
Venture capitalists from finance companies in Singaporeand angel investors may not look for fund repayment but will demand equity and percentage ownership of the start-up business. It only means that the entrepreneurs may lose some of their control over their company.
DISADVANTAGES: Above The Standard Qualifications
Many start-up businesses find it hard to secure funding from equity financing. Venture capitalists highly favour companies in line with technology. They also evaluate the company based on its business value, potential growth in the market, and future projections.
DISADVANTAGES: Not For Short-Term Funding
Since start-up businesses have to give up some control in equity financing, it is not ideal for companies looking for quick cash and short-term funding. The application process for funding in equity financing is not fast either. If your business is looking for short-term monetary support, loans are the ideal choice.
What Financers Look Into A Start-Up Business
History of Business
Business financing companies in Singaporeoften check for the history of the company. How the entrepreneurs came up with the business, the purpose of their product and service, the previous challenges they have encountered and how they solved them.
The Business Process
When presenting a business plan, financers often look at the entire business process. How the revenues will be generated, and how the product and service will be delivered.
Business financing companies in Singaporewill want to know your start-up business’ market niche, target market size, opportunities and strategies and competition.
It is better to present your start-up business’ projections to convince financers. Good business projection is better. It is better to lay out your start-up business plan for expansion, product and service development, and additional markets.
Excellent leadership and highly skilled and knowledgeable teams also impress financers. They will know that the start-up business is in good hands with outstanding team management.
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