According to the Global Entrepreneurship Monitor GEM Ecuador , one in three Ecuadorians is an entrepreneur . This makes us one of the most entrepreneurial countries in Latin America and the world. And we are proud of that! If you are also preparing your business plan, do not forget that you will need to establish an economic and contingency plan. So, it’s time to explain some forms of financing for companies that you can find in our country .
1. Internal financing
Internal financing or self-financing is when the company, be it a micro, SME or large company, uses its own resources previously generated through its commercial activity. In some cases, these funds are usually enough to finance investments of any kind, which allow the business to increase its profitability. In other words, internal financing does not involve funds from external sources , as in other cases that we will see later.
2. Financial leverage
Contrary to own financing, we find financial leverage , which we have already explained to you previously in another post, but we are going to recap.
Financial leverage consists of combining a portion of the company’s own funds with funds from external sources , such as banks and their credit offer . But when is this type of financing used? Depending on the objectives of the company, leverage is used when you want to invest more money than you actually have .
And we cannot let you advance without first showing you a small and simple equation with which you will understand why financial leverage is a valuable opportunity for so many companies.
The term may not sound familiar to you, but you probably used this method to finance your micro-business and, in reality, today’s large corporations were born that way, for example Microsoft and Google.
The bootstrapping is a form of financing for companies is to start a business from scratch using only the resources you have at that time, although few. And when we talk about resources, we mean literally everything that is available at home and that can be used to take the big step and undertake.
The savings of the whole year, the personal computer, the telephone and the home cellar … everything is useful and valuable when you want to bet on an idea. Let’s look at some pros and cons of bootstrapping .
4. Angel investors
If you like TV programs about entrepreneurship and business, you surely know this financing option for companies. An angel investor is a person , usually a businessman, who has the financial capacity to contribute capital to an idea or business with high growth potential, in exchange for a percentage of the profits, of course.
Betting on an idea makes the entrepreneur involved in the processes and decisions of the business. In addition, it brings its knowledge and expertise to the entrepreneur, providing a very valuable network of support and contacts.
5. Project incubators
Another way to finance new and small businesses is project incubators . These are companies or institutions that support an idea with knowledge, innovation, tools and workspaces to develop it successfully. In this same group, we can include business accelerators , which support SMEs or already established startups that need capital injection or other resources to grow.
6. Crowdfunding and Crowdlending
This new form of financing for companies is already emerging in our country, so let’s see what it is about.
The crowdfunding is a campaign microfinance or also f collective INANCING . Through digital platforms, the necessary funds are raised to finance ventures that lack capital . Of course, it is a mandatory requirement that the details of the business be exposed openly and formally to legitimize it before investors. It is important to build trust!
On the other hand, crowdlending also refers to collective financing , with the difference that small investors lend their money to the company and then recover their investment with interest. For this, it is essential to establish the legal bases on which this type of operation is based: interest rates, term, etc.