It often takes two to three years for a start-up business to generate any significant revenue. Until then, startup entrepreneurs are forced to budget their startup capital. In many cases, however, there is not enough equity available, so banks, investors and other sources of financing have to be brought on board.
But what concrete financing options do founders in Germany actually have?
Option 1: A loan from the house bank
If you have to take out a loan to start up a business, you are in good company, because very few founders have sufficient equity capital. However, there are also different types of loans.
First of all, the obvious thing to do is to ask your own bank for a loan. However, one should be aware that many banks are willing to invest only from a five-digit sum of money, otherwise the administrative burden would not be worth it for them. In addition, so-called startups are often rejected due to lack of sufficient collateral for a loan. For this case, however, there is the possibility to turn to guarantee banks, to which a deficiency guarantee can be applied for.
Option 2: A microloan
If the equity capital is actually large enough and there is only a lack of start-up financing with a smaller sum up to a maximum of 25.000 euros, a so-called microloan may be appropriate. Each federal state has a development bank, which grants such microloans under certain conditions. However, in the case of such a loan, entrepreneurs should note that the interest rate is much higher than in the case of loans designed for the long term.
Unfortunately, microcredit institutions, especially in India, have led to the failure of the idea. Excessively high interest charges led to suicides of several borrowers, especially poor rural women. Muhammad Yunus, who won the Nobel Peace Prize in 2006 for the concept of microcredit, himself stated that there are good loans and bad loans. This would depend directly on the intention of the respective institutions. You would have to compare. But a big advantage of digitalization is exactly that: you can now compare! Organizations and companies offer advantageous loans for the self-employed on terms that can vary widely.
Option 3: Venture capital companies
Since seed capital can also be generated through investment companies, startups don't have to rely exclusively on bank financing. For example, if the business model has high potential for development, venture capital (VC) firms will invest in concepts that may even be considered somewhat risky. However, VCs not only share the risks, but also support founders, especially in important company-relevant decisions.
Option 4: liquidity through factoring
Especially for startups, it can be a problem in the early stages when customers do not pay their bills within set deadlines. An attractive additional financing to the bank loan can represent in this case the Factoring. But what is factoring actually? Factoring involves a factor purchasing trade receivables from a business and paying out up to 90 percent of the invoice amount to the business owner within 48 hours. The remaining amount minus fees will be settled as soon as the customer has paid the bill. The advantage of this funding option is an almost immediate and, above all, ongoing liquidity. At the same time, with factoring, the accounts receivable management as well as the dunning process are usually in the hands of the factor. In this way, the young entrepreneurs can push their core business without having to spend additional human resources in these areas.
Possibility 5: Crowdfunding
Meanwhile, there are countless platforms on the Internet that bring founders together with people who are willing to invest money in business ideas behind them. What is crowdfunding? Thus, crowdfunding is not about a single large investor, but a whole swarm of small investors. The disadvantage, however, is that most platforms only have a limited period of time available to convince small investors of their own idea.
Podcast: Play in new window | Download | Embed With Christmas competition and exclusive insider info: Tristan, as the only sane person in the studio, discusses the topic and benefits of crowdfunding with Christian, who has fallen ill. The also ill Krautreporter Sebastian Esser grants us thereby exclusive views of the new Crowdfunding platform Steady.
Possibility 6: Bitcoin & Co.?
We mention cryptocurrencies and trading in forex and CFD products primarily because it keeps coming up in news coverage. Bitcoin, Ethereum and other cryptocurrencies carry a high risk and can lead to capital loss. The use of leverage can increase both profits and losses; profitable actions can also turn negative. There's no guarantee of success and it's important to understand all the risks.
Cryptocurrencies are a high-risk investment and we always recommend checking the applicable laws. However, with a serious and v.a. certified providers, they are still currency investments and therefore legal. (If there is any change in this fact, please let us know and we will adjust the post accordingly.)
Possibility 7: Use state subsidies
In the Federal Republic of Germany, there are various government subsidies and development banks. The Germany-wide contact for the allocation of these funds is the KfW Bank. Among other things, it grants low-interest start-up loans. If one would like to free oneself for example from the own unemployment, a so-called establishment subsidy is made available by the state. It is only important that the respective requirements are met and that the start-up project is also viable.
Conclusion: Start-ups have a wide range of financing options
The different variants show that there are quite different possibilities for founders of the financing of their enterprise, which can go beyond a classical bank loan. Combination financing of credit and factoring is also possible, for example. In addition, one should also inquire about favorable financing from the state. In addition, other financing options can be used in a complementary manner.