How to Finance your Self-Employment (2024)

How to finance your self-employment project will depend on who you will ask for it, from banks to crowdfunding or venture capital, among others. Each of them has different requirements and recommendations.

There is no single formula for financing a business project; in fact, there are very diverse and different ones.

Bank financing for a project

That is one of the most common and frequently used business financing models. There is no single form of project financing, although the most common are the following:

1. Loans: an amount of money is lent in exchange for agreed interest with an agreed repayment term. It will usually be repaid in installments.
2. Lines of credit: a predetermined amount that may or may not be used is offered on credit. Usually, only interest is paid on the money available on credit, and its amortization makes it available to use again.
3. Participating loans: these are loans in which, at their conclusion, instead of repayment, we can convert the amount of the loan owed into shares in the company.

In addition to these tools, banks can use invoice discounting, bill discounting, or factoring tools. All of them are related to invoices or bills of exchange pending payment, which the bank can advance in exchange for a percentage of the same.

Financing a company with a Business Angel

These are private investors who seek to invest in new companies or business projects. Generally, in addition to participating with investment, these profiles also participate as advisors in the design of the company’s growth projects.

Subsidies and grants for the creation of business projects

That is a common way of seeking financial support for business start-ups. Different subsidies and support tools exist to create new companies in diverse areas.

They range from governmental to regional or local aid. These companies are usually in annual calls and framed in programs to promote business growth.

Venture Capital to finance companies

In this case, the financing is obtained through Venture Capital companies that offer investment and advice. Depending on the type of project, these companies may participate temporarily in the shareholding until the financing is repaid.

New financing models for companies

Decentralized finance and new financial tools have also brought new models for financing a business project. Among them, we highlight the following:

1. Crowdfunding: it is a collective financing formula in which rewards or benefits can be proposed in exchange for participation in the financing of a specific project.
2. Collaborative lending: closely related to the previous figure. Collaborative lending is based on crowdfunding in exchange for small or medium-sized investors who will participate in financing a project in exchange for an agreed return.

These options, and other similar ones, are carried out through Internet platforms.

Tips for requesting financing for a project

As a general rule, when we are going to request financing for a project, we need two main issues:

• To have a clean debt history or the capacity to be assumed.
• Present a viable project in figures

Logically, if the interested party is in default files, obtaining financing will be more complicated. If public entities promote the funding, it will also be necessary not to have been sanctioned for infractions against the Treasury or the Social Security.

And, of course, it will be necessary to present figures supporting the project’s viability. It would be best if you convinced investors to bet on your business idea. For all this, the numbers and perspectives of your project must be inviting. It is also important to have a specialized team in your field of action to convey greater confidence to potential investors or concessionaires of the financing.

Another issue to consider when asking for financing from alternative sources (crowdfunding type) is to offer a realistic but attractive reward. High participation in the business or profits from a certain moment on is usually the most striking proposal that can arouse more interest to participate in your project.