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Things To Consider When Funding Your Own Project

Things To Consider When Funding Your Own Project


    

Things To Consider When Funding Your Own Project

by Wade Henderson

Project funding is an obstacle all new entrepreneurs deal with, here we try to give you a few ideas about ways of funding your own business.

When you are looking into project funding there are a few things you should keep in mind in order to distinguish between commercial debt and venture capital. One of the risks that you take when using project funding from a bank, is the fact that loans are quite expensive. If you are not able to pay back your loan you risk losing everything or part of what you have invested. Venture capital though more attractive in that sense because once you have it is less costly. However, the investor may choose to participation in the decision making process and therefore you are sharing your leadership.

The first and safest source for project funding comes from the owner itself. The amount of money you decide to invest depends partly on how much you have, whether in savings, investments or a house. It also depends on how you divide the ownership of the company.

When you create a business, at one or another you will face the need of investing in personnel if you want to expand. For this you may need to borrow yet more money. Entrepreneurs take their risks, but you can share it when you look for project funding sources that want to invest in your creative ideas, like venture capital.

On the other hand if you are planning to use only your personal resources for project funding, it is necessary to reconsider. Instead of putting money directly into the company it may be better to use as collateral for commercial loan. This not only increases the credit for the company, as the interest paid on the loan is tax deductible, and the loan can be considered almost free of charge.

Another alternative for project funding is family or friends in the form of loans or investments. But one should consider that this may affect your personal and business relationships if proper precautions are taken.

Whatever the amount, all your expectations and those of your friends will be set in writing. Things like: when you will pay back, how much they lent you, and whether you will pay interests. Doing this will greatly protect your relationship with friends and family.

Some of the terms that you need to consider when writing your contract with friends and family are:

What is interference on the administration of the company?

Who retains the right to buy its stake in the company?

How are profits distributed?

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