Question about funding my startup

digiology

Hi all,

Let me explain my situation, I have a great business idea but need between €60,000 and €80,000 to get it going.
The good news is that its fairly low risk, most of the money will go towards equipment that can be sold second hand at a 10%-15% loss if the business tanks (thats assuming I get vat off the equipment). General running costs should be very little.

A bank loan would be ideal, but if there are better options please do tell.
In let say a year and a half when hopefully banks are lending a little more what are my chances of getting a loan like this that I wouldn't have to start paying back for 9-12 months.
I mean, during the boom would this have been realistic?

I have no property and I would be using my parents as guarantor (both home-owners). I would hopefully be over 6 months employed in a job at the time of applying.

Failing that, what other options are there for my situation?

tombull82

digiology wrote: »

Hi all,

Let me explain my situation, I have a great business idea but need between €60,000 and €80,000 to get it going.
The good news is that its fairly low risk, most of the money will go towards equipment that can be sold second hand at a 10%-15% loss if the business tanks (thats assuming I get vat off the equipment). General running costs should be very little.

A bank loan would be ideal, but if there are better options please do tell.
In let say a year and a half when hopefully banks are lending a little more what are my chances of getting a loan like this that I wouldn't have to start paying back for 9-12 months.
I mean, during the boom would this have been realistic?

I have no property and I would be using my parents as guarantor (both home-owners). I would hopefully be over 6 months employed in a job at the time of applying.

Failing that, what other options are there for my situation?

BOI are doing get packages for startups at present and are offering startup loans of upto €300k but I'd say you would want to have a gold plated business plan to get big bucks off them..

digiology

Thanks, I haven't done much planning yet but its a very niche thing that would be hard to convince anyone of its potential unless they were familiar with market.
Like I said, it is low risk given that its going in to equipment that can be sold off, I would hope that would work in my favor.

tombull82

digiology wrote: »

Thanks, I haven't done much planning yet but its a very niche thing that would be hard to convince anyone of its potential unless they were familiar with market.
Like I said, it is low risk given that its going in to equipment that can be sold off, I would hope that would work in my favor.

NO I would definately not go in say that if it does not work the equipment can be sold off to recoupe the costs, the first thing they will then say to you is that you are not even confident in the plan yourself and hence looking to put your their money into it and not your own.. be careful as everything can be turned against you. You will have to think of every question that can possibly be put to you and have a good answer for them..

digiology

tombull82 wrote: »

NO I would definately not go in say that if it does not work the equipment can be sold off to recoupe the costs, the first thing they will then say to you is that you are not even confident in the plan yourself and hence looking to put your their money into it and not your own.. be careful as everything can be turned against you. You will have to think of every question that can possibly be put to you and have a good answer for them..

Good point but wouldn't it be good to highlight the fact that the worst case scenario is, well, not so bad?

I'm very confident in my plan, or at least I should be by the time I need to apply for the loan. I'd put my own money into it if I had any

Bandara

IMO the banks will not want to deal with you.

You have no assets, you are bringing nothing to the table and are requiring 100% funding and don't want to start repaying the loan for a year.

Your parents as guarantor isn't of any interest to a bank, they are not exactly going to find it easy to have your parents throw out of their homes if you fail or do a runner with the money.

Its a business loan and requires the normal business criteria, they would at the very minimum be looking for 50% funding from you.

With regard to how you do it, why do you not have your folks release 50k equity in their properties? You can then get the other 50k from the bank, your immediate repayments will only be half as you can defer your folks for a year (with their agreement of course).

If they are willing to go guarantor then this is not really all that different, except they are excused from any risk other than the 50k.

As a matter of interest why can you not start to pay back the loan within the first year?

digiology

Hammertime wrote: »

IMO the banks will not want to deal with you.

You have no assets, you are bringing nothing to the table and are requiring 100% funding and don't want to start repaying the loan for a year.

Your parents as guarantor isn't of any interest to a bank, they are not exactly going to find it easy to have your parents throw out of their homes if you fail or do a runner with the money.

Its a business loan and requires the normal business criteria, they would at the very minimum be looking for 50% funding from you.

With regard to how you do it, why do you not have your folks release 50k equity in their properties? You can then get the other 50k from the bank, your immediate repayments will only be half as you can defer your folks for a year (with their agreement of course).

If they are willing to go guarantor then this is not really all that different, except they are excused from any risk other than the 50k.

Thanks, its nice to know what's realistic. I never thought about releasing equity, and will look into this.

Hammertime wrote: »

As a matter of interest why can you not start to pay back the loan within the first year?

I won't be making anything substantial until at least 3 months after the loan and perhaps even 6 months. Admittedly I've never applied for a loan and am unsure about what kind of monthly payments to expect. It might be feasible to begin paying it back immediately, especially if it makes my chances better.

Thanks again for your help.

ecaf

just to let you know, we are in the same position as yourself. New to the business world and going asking banks for a loan. Bringing a bit ourselves to the table, but most banks won't bite at all, and we even have guaranteed business (sub-contracting) for a well established business, with a letter from them guaranteeing 5 years work and also projected figures for the next year showing that we will be out of the red in 3 - 4 months, and well able to pay back the loan after that. We are taking over existing work, so the figures drawn up by the existing business are correct.
We didn't go in very well prepared (in terms of a business plan) TBH but I am in the process of revising that. We had financial advise from an accountant, but he was sure we wouldn't have much trouble given the figures we had laid out, and we still do.

Plus be ready for over eager staff trying to pull you in, but once you've made the application, be prepared never to be able to contact them again! It is so frustrating, and I'm trying to keep a full time job on the go myself, so I don't really have the time to keep chasing banks up all day.

Just thought I'd share this so that maybe you can be far more prepared than we were. Also you will need to bring some money to the table, or they will just refuse you straight away. Hammertime has some good advise there.

Mr Biz

Hi all,

Let me explain my situation, I have a great business idea but need between €60,000 and €80,000 to get it going.
The good news is that its fairly low risk, most of the money will go towards equipment that can be sold second hand at a 10%-15% loss if the business tanks (thats assuming I get vat off the equipment). General running costs should be very little.

A bank loan would be ideal, but if there are better options please do tell.
In let say a year and a half when hopefully banks are lending a little more what are my chances of getting a loan like this that I wouldn't have to start paying back for 9-12 months.
I mean, during the boom would this have been realistic?

I have no property and I would be using my parents as guarantor (both home-owners). I would hopefully be over 6 months employed in a job at the time of applying.

Failing that, what other options are there for my situation?

Have you thought about getting an investor on board?
If it's low risk as you say, many might jump at the chance..

Have a look at www.businessangels.ie
No association

Good luck!

digiology

Mr Biz wrote: »

Have you thought about getting an investor on board?
If it's low risk as you say, many might jump at the chance..

Have a look at www.businessangels.ie
No association

Good luck!

Yeah I thought about that, I'm not comfortable selling off part of the company but its an option.
I reckon we'd be bringing in between 6,000 and 9,000 euro a month if we got an 80,000 euro investment so I reckon they would want a big chunk of it.
That said it is low risk and its also very scalable, all profit would be used to expand capacity (its a web service) meaning we could be earning double the next year, quadruple the next etc.

Thanks, I will keep this in mind.

byrne0f56789

Look to lease your equipment. That's probably easier than getting a bank loan to buy the equipment.

digiology

byrne0f56789 wrote: »

Look to lease your equipment. That's probably easier than getting a bank loan to buy the equipment.

Its quite specialized equipment which is hard to get hold of unless you buy it, at least thats true in Ireland.

I might be able to convince the companies that make the equipment to let me use it for free for a period, it will act as a form of advertising for them.

Overall, I reckon I'll have to do some combination of what everyone has suggested.
Thanks everyone, keep 'em coming

Spinnaker

Read up on Finance Leases and Operating Leases. The former might just enable you (versus raising full capital) if everything else is in line.

Finance leasing is particularly applied to specialist equipment often directly by the bigger vendors or indirectly by a bank section or international lease provider recommended by and known to the vendor. (The vendor needs them to facilitate the sale just like a car dealer does).

Note you will still need to provide security and other assurances.

You can find cost calculators on line. Here's a rough one... (no connection) http://www.financeirl.ie/commercialf.html

antoinolachtnai

You probably need an investor who will give you a mix of debt (secured on the machinery) and equity capital. This can be done, if the figures are really solid. Maybe the bank would go for it if it were well presented.

Can you get your prospective customers to make written commitments or even write letters of intent to you about this?

digiology

antoinolachtnai wrote: »

You probably need an investor who will give you a mix of debt (secured on the machinery) and equity capital. This can be done, if the figures are really solid. Maybe the bank would go for it if it were well presented.

I'm not sure I fully understand you but it sounds like you're saying that I can have an arrangement where the investor pays for the machinery but has it as collateral?
About the bank, I presume you mean after some investment in the business has been made then I might be able get the bank to lend additional funds to me? Or by 'investor' did you mean the bank?
Sorry, I'm not up on the business lingo (yet).

antoinolachtnai wrote: »

Can you get your prospective customers to make written commitments or even write letters of intent to you about this?

No, I'm offering services to consumers and I'd rather keep a tight lid on it until its launched if thats possible.

digiology

There is one other option. I could go to the companies who make the equipment and offer them a percentage of the company in exchange for a year loan of the equipment.
It would be good advertising for them but I'm not sure how willing they'd be willing to give some startup 2-6 grand of equipment. The percentage wouldn't be likely to make them much money (compared to their revenues) but would show that we're a real company and not some scammer.

tombull82

was it not "60-80k which most of would be the equipment cost"??

tombull82

truth is nobody here can really give you the correct answer as you could be looking at thousands of different markets. Its hard to tell how to get funding without knowing what your doing, and i know you can't really disclose that at present

digiology

tombull82 wrote: »

was it not "60-80k which most of would be the equipment cost"??

Sorry let me clarify. Each unit costs between 1 and 4 grand, I need one or two units from various manufacturers.
The number I need is really down to preference, I'd like to launch with about 15 but 10 would be cool. In theory I could squeeze everything into about 40,000 but I would prefer to have more for a launch.
My capacity to serve customers is limited by how many units I get a hold of but I can scale everything up once I'm making profit.

kenbrady

digiology wrote: »

Sorry let me clarify. Each unit costs between 1 and 4 grand, I need one or two units from various manufacturers.
The number I need is really down to preference, I'd like to launch with about 15 but 10 would be cool. In theory I could squeeze everything into about 40,000 but I would prefer to have more for a launch.


My capacity to serve customers is limited by how many units I get a hold of but I can scale everything up once I'm making profit.

How are you going to get your first customer ?

There are companies that have no issues with capacity to serve customers and they still can't get funding. An iphone app can serve millions of customers and has access to a market of millions. But the problem is who will buy the app and why, not how many they can serve.

Save up and buy one unit, nobody will ever fund anything to meet extra capacity of customer you don't have.

antoinolachtnai

If it's a consumer play and it's a new product, it's a marketing game, especially if you want to launch sort of big, which is what you want to do.

That is where the cost of launching a venture like this comes in.

digiology

How are you going to get your first customer ?

There are companies that have no issues with capacity to serve customers and they still can't get funding. An iphone app can serve millions of customers and has access to a market of millions. But the problem is who will buy the app and why, not how many they can serve.

Save up and buy one unit, nobody will ever fund anything to meet extra capacity of customer you don't have.

I should say that each unit will only serve one customer at a time, they will be using it remotely which more cost effectively than buying something they're only going to use for an hour or two a week. They book time slots so 10 units may serve 200-300 users let say but only 10 concurrently.
Consumers will want variety and one unit will make the service very poor.

This may sound naive but the market I'm targeting will spread this by word of mouth (forums probably) and very little marketing will have to be done, in fact if I marketed it I'd already be short on capacity.

Funds may come from the Government (at EU, national and local level) and from a number of organisations such as Local Enterprise Agencies. Many major private companies collaborate with such organisations to provide finance in the form of grants and loans. Banks are more likely to help small businesses that are receiving support and advice from these agencies.

I will definitely pursue this but I would have to change my business plan a little as they would probably be looking for job creation opportunities, not simply a return on the investment.
For the first year this would probably be running from my home if I can get a fast enough broadband connection. That way all profit can go in to increasing capacity.
There are opportunities for jobs (support, development) but I'd need double the investment to pay for office space and salaries if I were to start employing immediately.

kenbrady

digiology wrote: »

This may sound naive but the market I'm targeting will spread this by word of mouth (forums probably) and very little marketing will have to be done, in fact if I marketed it I'd already be short on capacity.

Let's just say that is true (but it's not)

Why is there no people doing it at the moment ?

What's to stop a competitor ? with more money coming in and offering the service cheaper, as they can buy more machines, get better prices and offer a faster turn around to customers. Hell they might even spend some money on marketing.

antoinolachtnai

So how are you going to get your first customer? You need a good few customers to begin with to get any word of mouth.

I would still say you are underestimating the cost of marketing. Have you done any market research to determine the best price?

It is hard to say without knowing more about the product.

digiology

antoinolachtnai wrote: »

So how are you going to get your first customer? You need a good few customers to begin with to get any word of mouth.

I would still say you are underestimating the cost of marketing. Have you done any market research to determine the best price?

It is hard to say without knowing more about the product.

Perhaps I am, I cannot see the need for marketing if the idea is really as useful as I think it is. Its the kind of thing that people spend hours in forums talking about, this is pretty new and should spread provided I have a good service from day 1.

There is nothing else like this around so I would imagine I'd set the price a little higher than I'd pay for it (and lower the price later if necessary) but make sure I get plenty of opinions before the launch.

I imagine that it'd be something like 1 euro an hour (20 minutes would be fine for most customers) to use something that they would normally pay 2000 euro to buy and only use for an hour or two a week.

I realize that this is a little pointless without telling you more about the market I'm targeting. I think I know what my options are now.

antoinolachtnai

Marketing is not just promotion. There is a lot more to marketing than that.

My opinion - I would say, like someone else, get one unit, try it out, see how it goes with some people you know from forums. You will learn loads from that with very little risk.

digiology

antoinolachtnai wrote: »

Marketing is not just promotion. There is a lot more to marketing than that.

My opinion - I would say, like someone else, get one unit, try it out, see how it goes with some people you know from forums. You will learn loads from that with very little risk.

Oh I'll be buying one unit, for testing that is. Launching with one is suicide, I'd have a competitor on my ass before I have adequate capacity.

antoinolachtnai

If the market is really as big and solid as you think, then 80k and one of ten different units isn't going to provide you with a great deal of capacity to fend off a serious competitor either.

Maybe you need a partnership with someone who can provide the extra capacity if and as you need it?

digiology

antoinolachtnai wrote: »

If the market is really as big and solid as you think, then 80k and one of ten different units isn't going to provide you with a great deal of capacity to fend off a serious competitor either.

Maybe you need a partnership with someone who can provide the extra capacity if and as you need it?

Great question. Ideally I'd start with half a million but that aint going to happen. The software will easily take a year to develop (I'm a software engineer and am working with someone else) so that gives us some time to be ahead of the curve.
We could patent it but thats just more money wasted that could be put into capacity.
If we can start with 60-80k that'll be a decent service to start with and allow us to double the capacity the next year with the profit if all goes well. I would imagine that once its launched we'd find it much easier to find additional investment but well have to start with a good service first.

I'm not sure who would partner with us, I know you can't help with that because the product is a secret

antoinolachtnai

Well, this 'unit' that you're buying, it must have a supplier, and one of those suppliers would be the obvious partner.

A year sounds like a long time to wait to launch - someone could have stolen a march on you by then. If it's really a big potential, you might need to get more money in order to allow you to be appropriately aggressive.

kenbrady

digiology wrote: »

Great question. Ideally I'd start with half a million but that aint going to happen. The software will easily take a year to develop (I'm a software engineer and am working with someone else) so that gives us some time to be ahead of the curve.
We could patent it but thats just more money wasted that could be put into capacity.
If we can start with 60-80k that'll be a decent service to start with and allow us to double the capacity the next year with the profit if all goes well. I would imagine that once its launched we'd find it much easier to find additional investment but well have to start with a good service first.

I'm not sure who would partner with us, I know you can't help with that because the product is a secret

If you say it's what you say. A proper business plan is all that it would take to raise a million. You have to answer these questions first:

What are people currently using ?
Who are the competitors, existing and future ?
What is your unique selling point ?

I've seen every type of start up company, none have ever had a paid for product, that can be launched via word of mouth, with the only issue how to meet customer demand.