START-UP FUNDING

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By: Admin

How Do I Give Money to My Start-up Business?

New business ventures can lead to difficulties producing cash and capital. A typical start-up goes through several rounds of funding. New companies need a lot of cash to cover business expenses as little revenue is generated in the beginning.

Two general start-up funding options for your venture are:

  • Shareholder Loans

To organize a shareholder loan, you need to write a bank check or make an electronic transfer from your bank account to the company’s account, then establish a promissory note. This one page document affirms you as the lender and the company as the debtor and should be signed twice by you. There should be no interest charge or fix terms of repayment for legislative ease. These loans can be repaid to you tax-free once the company is generating enough revenue.

 

Most potential lenders will look for the four C’s of lending when evaluating a loan application.

  • Cash Flow – your ability to repay the money you are borrowing.
  • Collateral – value of assets that you are pledging for assurance of paying back the loan.
  • Commitment – amount of money you are providing for your business.
  • Character – your history with financial institutions and personal credit score.
  • Issuing Shares

You can capitalize your new company by having it issue shares directly to you. For example, if the company’s expenses add up to $20,000, it can issue 20,000 common shares to you for $1 per share. When the company has $20,000 available in cash, it can repay you. This method can be expensive as issuing shares necessitates various legal documents to be prepared.

Other ways of financing your start-up venture include:

  • Debt Financing

This includes government funding and commercial loans. Government grants are typically sought out because it is free money that you do not need to repay. Unfortunately, very few grants are available.

Commercial loans include long-term and short-term loans. Long-term loans are used for larger expenses and are generally secured by new assets, or additional stakeholder funds. Short-term loans are usually for one year or less. These are used to finance everyday expenses and can be subject to an increased base interest rate.

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