When a person, group of people, or company decides to begin a new startup or expand an existing business, they are usually faced with several problems that they must immediately solve. It is not enough to have a good idea and demonstrate its feasibility; a person must be able to implement it.
Therefore, financing becomes a fundamental issue for these new ideas. Unfortunately, people who decide to undertake a new venture face numerous problems when obtaining sources of financing, including:
- Inaccurate estimates or financial plans for realistic project costs.
- Naiveté of current market possibilities and limitations.
- Inherent investment risks that generate uncertainty in front of third parties.
- Scarce resources are initially available.
Challenges in Securing Financing for Startups and Business Expansion
An entrepreneur’s options when financing a startup project may be limited, so it is essential to know what options are available and clearly define the financial needs of the prospective business. It is necessary for an accurate and realistic budget to be created and reflected in the volume of the investment so as to absorb any unexpected costs.
Similarly, the business plan must detail those financial needs to start the project. Currently, there is no single financing model as the size of the company, the sector, and even the country can impact any company’s financing structure, causing the investment amount to vary. In general, there are two financing options: personal resources and third-party resources.
Navigating Financing Options
Personal resources or partner contributions are scarce, and the cost of maintaining them is high. It is a common misunderstanding that personal finances are the best option, but that can be a mistake. Depleting private equity or investing personal funds can significantly impact one’s livelihood, and if the venture fails, the entrepreneur could be in dire financial stress.
Exploring Third-Party Resources
Conversely, third-party resources have limitations, and the periodic interest payment reflects the cost of utilizing them. Loans are the most common products, but other financial tools, such as leasing, should also be considered to finance fixed assets and production.
Another funding source is subsidies, a type of financial aid whose access can be cumbersome because of the requirements necessary to obtain them. Subsidies should be utilized as a secondary financing option, and a startup or expansion should not be considered if it depends solely on this type of aid.
Venture Capital and Global Trends
If personal resources do not allow an entrepreneur to implement a structure of healthy financing, it may be necessary to consider introducing new partners, either industrial (or sector) or financial. Financial partners can vary, although it is worth highlighting that venture capital companies are developing in major economic powers, including Spain, compared to the rest of the European Union, especially the United States. 
Venture capitalist firms specialize in investing capital in companies during a specified, limited time and with a minority participation. They act as a partner in rights and obligations since they directly participate in the company’s share capital and, therefore, can contribute economic resources, experience, and knowledge to the company’s management. Generally, before investment, these firms will ensure there is an option to abandon the project as they will seek to maximize their profitability and protect any remaining resources.
Strategic Capital Planning
Finally, it is essential to emphasize the need for an entrepreneur or company to understand and define investment needs and capital planning clearly. They must consider deadlines, obtain excess capital to avoid unexpected costs and study the market for potential economic fluctuations. When these factors are carefully considered and monitored, a balanced financial investment structure can be developed to obtain financing through personal or third-party resources.
Conclusion
Launching a startup or expanding a business necessitates careful financial planning and strategic decision-making. Challenges in securing financing, such as inaccurate estimates and investment risks, highlight the need to navigate available options wisely.
Successful financing demands a solid understanding of options and a proactive, adaptable approach to the dynamic entrepreneurial landscape
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