How can I finance my start-up phase?
Financing a business means obtaining enough capital to set up and run your business. Appropriate financing will help make the start-up period and the early period of the business easier for you, enabling you to meet your payment obligations.
The most common way to fund a start-up is through equity and loans. It is also possible to obtain external investors. These could be friends, family members or professional investors. In return, you could offer your investors shares in the company, for example.
You could also recruit investors through what is known as "crowdfunding", for example (network financing through collecting money) if you have an idea that is interesting to the market. The public sector also offers a number of support schemes which you can apply for subject to certain conditions.
What will I have to finance?
It is important to find out what and how much capital you will need to finance the start-up phase. You can calculate this amount by preparing an overview of your capital requirement (start-up costs). Here, you calculate what equipment you will need and your other start-up expenses and any operating capital in order to cover ongoing expenses during the period until you start to generate revenues. Once you have calculated your capital requirements, you must look into financing.
Make sure you have enough equity to finance your project. Equity should amount to at least 20-25% of your capital requirement. In addition to money and assets in property, equity can also be in the form of equipment. Your equipment must be valued before it can be recognised as an asset in the business.
Your own input as equity
If you apply for aid, you will normally be required to have some equity. The amount of equity that is required may vary between the various aid schemes. You can include your own input as part of the overall financing in your financing plan. This expense must correspond to time records you have kept multiplied by the specified hourly rate from those providing the aid. Your own input could be the work that you do relating to market evaluation and product testing. This should be included in your financial statements.
If you need to borrow money to fund your start-up, you can apply to your bank or other financing institutions for a loan. You should be aware that lenders will require collateral for the loan, for example in the form of collateral in real property, stock or equipment. If you can offer good collateral, you will be able to secure better interest terms than with poor or insecure collateral (such as stocks, for example).
If you wish to borrow money from a bank, it is important that you prepare thoroughly for meetings and that you are able to present realistic budgets and show that there is demand for your project in the market. A carefully considered business model, along with your business plan and realistic start-up budgets, will provide a good starting point for your discussions with your bank.
Many public sector support schemes are available, which you can apply for funding from whether you are in the planning phase of your business or you are already under way. If you have an idea which represents something new and does not compete directly with anyone else, you could for example apply to Innovation Norway. You could also investigate whether your local authority has any municipal or local support schemes which you can apply to.
With crowdfunding, you can fund your start-up with contributions from many separate sources, including both individuals and businesses. This method also provides you with excellent feedback from the market on whether your project has market potential.