It’s often said that fortune favors the brave. Is it any wonder why many of the world’s richest people happen to be startup founders?
Of course, big dreams and unwavering drive are just the beginning; if you want to start a business in the Philippines, you need access to capital, too.
How exactly do you go about that? Here are six options:
The least complicated way to fund a startup business in the Philippines is to finance it yourself. Do note that “least complicated” does not necessarily mean “easy” — you’ll likely need a significant amount of capital to get your startup off the ground. Many founders save up money for years before starting their own company, while others liquidate existing assets to raise the needed capital. The upside? Since you have full ownership of the company, you won’t have to deal with investor demands. Hence, you can build your startup as you see fit without external pressure.
If you don’t have quite enough money to self-fund a startup, consider asking friends and family members to become investors. Since they already know you, they’re more likely to lend the funds you need to bootstrap your company. And unlike with bank loans, you won’t have to fill out a lot of paperwork and go through a long application process. More importantly, they may be more flexible when it comes to payment terms and interest rates. In exchange, however, you will have to make your loved ones part-owners of the venture. Likewise, you need to draft a contract that clearly spells out their equity, as well as the repayment terms for your loan.
An ambitious startup with big goals needs correspondingly big capital. In such a scenario, loaning money from the bank is the perfect way to get funding. You actually have two options to choose from: personal loans and business loans. Many banks give six to seven-figure personal loans, but you’ll have to pay it back within three to five years. If you need a much bigger sum and a longer repayment period, you can opt for a business loan instead. In either case, you will need to provide proof of creditworthiness before being granted a loan.
Have the capital to launch your startup but not enough to cover its overhead costs? Then getting a line of credit might be the solution you need. In a nutshell, it allows you to borrow a fixed amount of credit and you are expected to repay it in full before the billing cycle ends — not unlike a credit card. This financial product can help you meet short-term business needs, such as making payroll or paying suppliers. Once your customers pay for your product or service, you can use the revenue to repay the lender and replenish your credit line. The downside of this option is that you can only borrow a predetermined amount and you may be asked to secure your credit line with collateral. Like other loan products, you are also at the mercy of a lender’s approval.
An angel investor is usually a high-net-worth individual who provides a substantial amount of funding to startups with no expectation of being paid back. Many popular startups such as DoorDash and Uber were backed by angel investors who believed in their vision and potential. Of course, all investments have strings attached. In the case of angel investors, they expect to own equity in the startup. They then wait for its valuation to increase before selling their shares to realize a profit (a process called “exiting”). Angel investors also often hold sway on how the business is run, with many demanding a spot on the board of directors.
In many ways, venture capital (VC) firms are similar to angel investors: they both make calculated investments in promising startups with the hope of making a lucrative exit one day. The difference is that VC firms are institutional rather than individual investors. As such, they can provide much more money to a startup than any one person could. However, competition for VC funding is stiff as these firms tend to invest in specific high-growth sectors or in companies that already have some track record of success. If you wish to be one of the lucky few to get funding, your startup needs to have a world-beating idea and a highly scalable business model.
Need expert advice on how to start up a business in the Philippines? Allow the experts of FilePino to be your trusted partner. We have extensive knowledge of the local business landscape and can provide you with services ranging from visa application to BPO consulting. To know more, simply call +63.917.892.2337 or send a message here.