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To get your business off the ground, diversify your financing!
Putting all your eggs in one basket will never be considered a good business strategy. Diversifying your sources of financing will give you access to different types of services, tailored to your specific needs. Always bear in mind that bankers don't necessarily see themselves as a single source of financing. Whether you opt for a bank loan, a grant, a business incubator or even your friends and family, each of these sources of help has its own specific requirements.
Here is an overview of typical sources of financing for businesses in Israel:
Personal investment
When you take out a loan, you invest your own money in the project or pledge collateral. Your participation is proof of your long-term commitment to your project.
Relatives' money
This is money lent by spouses, parents, other family members or friends. Bankers consider this type of financing to be patient capital, i.e. money that will be repaid later as your company's profits grow.
If you're thinking of borrowing money from your loved ones, keep these valuable tips in mind:
- They can rarely provide much money.
- They may want to own a stake in your company, which is not advisable.
- Doing business with family and friends should never be taken lightly.
Venture capital
The first thing to remember is that this type of financing is not for every entrepreneur.
Indeed, venture capitalists are looking to invest in high-tech and high-potential companies in sectors such as information technology, communications and biotechnology.
These investors also take a stake in the companies they finance, to help them realize a promising but higher-risk project.
This means that the entrepreneur must sell part of his business to a third party.
They also want a good return on investment, which usually comes when the company starts selling shares to the public.
Look for investors with relevant experience and knowledge that will benefit your business.
Angel Investors
Angel investors are usually high-net-worth individuals or retired business executives who invest directly in SMEs. They are often leaders in their field.
They bring their experience and network of contacts to the company, as well as their technical and management know-how.
Angel investors tend to finance companies in the early stages of development and the amount invested varies between 100,000 shekels and 500,000 shekels.
In return for the risk they take in investing their money, angel investors reserve the right to oversee the company's management. This often means sitting on the board of directors, and demanding an assurance of transparency.
Angel Investors want to stay in the shadows. If you'd like to meet one, contact specialized associations or do some research on the Internet.
Business incubators
Business incubators usually target young high-tech companies at various stages of development.
Incubators often invite new or emerging companies to share their premises and administrative, logistical and technical resources.
For example, an incubator can make its laboratories available to a new company, enabling it to develop and test its products at lower cost before going into production.
A company usually stays in an incubator for 2 years. When its product is ready, it normally leaves the incubator to begin industrial production and stand on its own two feet.
Incubator companies often belong to cutting-edge sectors such as biotechnology, information technology, multimedia or industrial technology. They have a better chance of survival over a five-year period.
Grants
Since innovation is not always easy, government agencies offer assistance to Israeli companies.
The funding provided can be used to pay for expenses related to research and development, marketing, salaries, equipment and productivity improvements.
Criteria for obtaining grants in Israel
Obtaining a subsidy is not always easy, as competition is usually fierce and the criteria applied are often strict. In most cases, the company must invest a sum equal to the amount of the grant.
In the case of a research grant, you may have to find only 40 % of the total cost.
You must provide :
- A detailed description of your project, including location.
- An explanation of the benefits of your project.
- A detailed work plan showing all costs.
- A description of the experience and background of key executives.
- Completed application forms, if applicable.
Here are some reasons why a grant may be refused:
- The research or project is not relevant.
- The company is located in an ineligible region.
- The applicant has not indicated how he will follow up his ideas.
- The research plan is not precise.
- The amount of work involved is unrealistic.
- The applicant cannot provide a sum equivalent to the grant.
Bank loans
Bank loans are the main form of financing for SMEs. Different banks offer different advantages, such as personalized service or flexible repayment terms.
Compare to find the bank that can meet your specific needs.
Banks generally target companies with a proven track record and excellent credit history.
To convince all these different sources of financing, a good idea is not enough. It must be backed up by an effective, relevant business plan.
Read also: How do you write your business plan?
