Starting a business can be daunting, especially if it’s your first one and you don’t have a lot of capital saved up. However, with some research and effort, you’ll find multiple financing sources beyond your own pocket.
Here are the most common startup funding for a business project in its earliest stage of growth.
Personal Savings
Most entrepreneurs rely on their own money for their first business venture. Personal savings can come from your salary, cash gifts from family and friends, interest rate income from your savings and investments, and/or sales of assets and personal belongings.
Thanks to the internet, more part-time jobs are available for people who want to earn additional income. You can search for these jobs through JobStreet, LinkedIn, Facebook or Upwork. If you have a vehicle, you can consider working for Grab or Lalamove.
For less time and effort earning project finance, you can sell non-essential belongings on Facebook Marketplace or Carousell. Another way is keeping your money in high-yield savings accounts. Digital banks, e-wallets and neobanks like Tonik, Maya and Seabank offer as much as 6% savings interest rates without minimum deposits or maintaining balance.
Personal savings are best for low-capital businesses, such as small-scale online stores, food stalls, or franchises. It might take longer to accumulate funds for a more capital-intensive business.
With personal savings as project financing, you won’t have to worry about paying anybody loan interests or possible penalties. However, because you’re only accountable to yourself, you might be tempted to overspend or not follow through on your business goal. Your startup funding should also not be taken from your emergency fund, as you’ll still need a safety net from medical emergencies, calamities or other unexpected events.
Private Investors
Private investors are family, friends, or acquaintances in your network with the capacity to invest in your business idea.
Not everyone in your circle will be willing to provide project funding without any promise of returns or interest. Some even demand to take an active role in your business in exchange for project finance. Before even asking others for project funding, ensure you already have these concerns figured out. Then, prepare a written business plan that explains your idea, growth projections, estimated return-on-investment (ROI), and potential risks. In addition, clarify the investor’s role, what they can expect in exchange, and how long they’ll have to wait before seeing any returns.
Personal loans
Most business loans from private and government sectors are typically limited to established businesses with at least one year of operations and a record of stability or profitability. While some lenders have business loans specifically for startup funding, they usually require a high personal income, a profitable business idea with good sales projections, or even collateral in the form of real estate or bank deposits.
This leaves most new entrepreneurs with personal loans for project financing. Personal loans range from ₱10,000 to ₱2 million, depending on the lender you approach and your current financial capacity. However, personal loans are a riskier source of startup funding. You'll still be required to pay a loan back plus interest even if your business fails.
To prove you can pay your loan, you must present proof of your personal income such as pay slips, income tax returns, and BIR Form 2316. Personal loans can be in the form of term loans or credit cards. Term loans provide a lump sum of capital, which is best for buying high-cost items. A credit card lets you borrow any amount from a set credit limit; it is better suited for small expenses like inventory and utilities. They also have very different loan amounts, interest rates and repayment terms. Term loans are paid monthly from 6 months to up to 60 months, with interest rates between 1.25% to up to 30% per month. Credit cards have up to 2% monthly interest rate but tend to have smaller credit limits, a monthly minimum repayment, and different interest rate computations and/or fees depending on your usage.
Another source of project funding is informal loans from your own network. While you may be able to negotiate better terms and interest rates with people you know, be aware that your rights as a borrower will not be protected by financing regulators such as the SEC if something goes awry. Your relationship with the lender and personal reputation will also be at stake if you fail to pay your debts.
Angel investors
Angel investors are rich individuals or groups that pool their money to finance startups and early-stage businesses with profitable ideas. These project funding sources are often professionals or business owners themselves who can connect you with other rich individuals, potential customers, or mentors. They can also provide up to millions in project financing, especially if you secure multiple investors.
Unlike banks, angel investors usually do not ask to be paid back with the original amount plus interest. They are repaid with shares or a percentage of your ROI. A detailed business plan with sales projections is essential to secure their project funding; it’s also best to be open to changes potential investors will suggest.
Manila Angel Investors Network Inc. (MAIN) is one of the more well-known investor networks, providing project finance for startups in up to 16 industries such as financial inclusion, entertainment and education.
Venture Capitalists
Venture capitalists are firms offering millions to billions in investment financing for startups and growing businesses. They also provide guidance in more complex business concepts to bring a startup to early or mature stages of growth.
Unlike angel investors, venture capitalists ask for a higher level of ROI and involvement in your business. In certain situations, they will even nominate their own experts in key business positions.
Applying for this project funding is more mentally and psychologically challenging. Venture capitalists seek long-term profits and detailed business plans – including your exit strategy should the business fail. Most require up to 30% of your ROI or profits, a management position in your business or board of directors, and/or equity ownership.
You can get massive startup funding from venture capitalists in and out of the Philippines. Most focus on businesses in the tech space, such as Kickstart Ventures of Globe Telecom. They fund startups disrupting traditional industries like finance, health, media, and telecommunications.
Business grants
Business grants come from government or private entities that aim to boost certain industries, promote certain advocacies, or help underprivileged sectors. For this reason, these financing sources have free or low interest rates.
However, business grants often offer lower amounts, which may not be enough to get capital-intensive startups off the ground. Applying for this project funding is also highly competitive. Apart from your startup being aligned with a certain advocacy or industry, grant sources usually consider your potential for scaling or mass production. Some examples are the HEAL (Health, Education, Arts and Livelihood) Program of Metrobank Foundation, Inc., and the business ayuda programs of GoNegosyo and local government units.
Summary
Among these project funding sources, you’ll surely find one or two that match the nature of your startup, financial capacity, and risk appetite. As long as your business idea is sound and you create a detailed but easy-to-understand business plan, personal loans, private investors, and even business grants can be within your reach. For more complex, capital-intensive business ideas with the potential to become revolutionary or industry-changing, angel investors and venture capitalists are a better option, as they can provide expertise and guidance that other financing sources cannot offer.
Whichever financing source you choose, always conduct proper research on their legitimacy and ensure that you are dealing with their official channels. Read their reviews, compare them with their competitors, and consult with professionals whenever possible so you always know what to expect.
