There are a number of different funding options that you can use. Some are good at a certain phase of a company’s development, while others may be directly inappropriate at other phases. It largely depends on where the company is in its development and what strategy the company owners have. A business plan or business model with accompanying budget combined with general cost awareness can lower the capital need and create further opportunities to move forward.

1. Capital injection
2. Bank loan
3. Guaranteed loan
4. Venture capital
5. Crowdfunding & Crowdlending
6. Grants & Scholarships

The term Family, Friends and Fools refers to a form of funding which, for many companies, is the first form of external funding raised. With this form, you or someone in your social circle organises the capital to get the company started.

It is often a relatively simple form of funding, if you have the money yourself. It also shows financiers and other stakeholders that you are willing to risk your own capital for the business concept.

If you make the investment yourself, you may be eligible for a tax credit called investor deduction, depending on the requirements laid out in current legislation.

You may have the capital in a savings account or stuffed under your mattress. If you do not have the capital, you can turn to a bank to see whether you can increase your private loan on your home or take out some form of unsecured loan to finance the company. Taking out a loan on your home can sometimes give you a better interest rate since most mortgage rates are much lower than most business loan rates.

Many seek funding through their social circle, and this is nothing you need to shy away from. However, it is important to be aware of the risk. There is more to lose than just money if the company does not do well, and everyone involved needs to have a firm understanding of what they are risking with the investment.

Some quick tips and advice when borrowing from your social circle includes:

Give a proper presentation of the company so that the investor knows as much as possible about the risk.

Create a payment plan that is reasonable and that both parties can agree on.

Write a promissory note agreement between you/the company and your acquaintance/investor to lay down the rules and guidelines in a contract (rules such as payment dates, interest, etc.).

Bank loans are also a very common form of company funding. This usually starts with a visit to your banker, who looks at your business plan and budget to assess your company's risks.

If you intend to borrow from a bank, it is good to be well prepared and able to present your concept. Having a detailed business plan increases your chance of being approved by the bank.

Changes to legislation will cause the assessment criteria of the banks to change. However, you can generally count on three rather clear-cut criteria:

The bank must believe in your ability to repay the loan, including the added interest.

You must have security for the loan – private security (like a personal guarantee) or fixed assets with book value.

The bank must also believe in your business acumen and the commercial viability of your business concept. In other words, you need to explain the capabilities in a good and credible manner.

Before going to the bank, there is a lot to be gained by ensuring that you have a good budget and business plan. It should be a reasonable plan and you should be able to justify your sales forecast.

A general rule is that a start-up can borrow about 10% of its turnover, but this is a general figure that may change depending on the above points.

If you want to pledge your assets in the company, many banks work according to the 10/20/50 principle.

10% of the new value of machinery and equipment is counted as pledge value, i.e. the sum you can borrow using fixed assets as security.

20% of the new value of the inventory is counted as pledge value.

50% of the value of issued customer invoices is counted as pledge value.

In other respects, the bank is like any other supplier. Maintaining a good relationship and ongoing communication will give you better opportunities for situations that arise in the future.

A good tip is to look for a bank with a banker who understands you and the company’s business plan/concept. Even if the interest rate is a few tenths of a percent higher, this close contact may be invaluable in the future.

A guaranteed loan is a loan where e.g. the European Investment Fund provides a guarantee of repayment to the institution that grants the loan. There are two banks offering these loans in Sweden at present, namely ALMI Företagspartner and Marginalen Bank. It is common for these banks to take part and co-finance bank lending. It can be a very valuable partner to have with you in cases where your credit rating is borderline. Guaranteed loans can help both start-ups and companies facing expansion. The advantage of this type of loan compared to a bank loan is that it is designed for a higher level of risk than a bank is normally willing to take. The downside is that a guaranteed loan is associated with a higher interest rate than a bank loan to compensate for the higher risk.

Some of the loans that are considered guaranteed loans include:

Microloans – A microloan is a loan that normally does not exceed SEK 200,000 and is mainly intended for start-ups. The capital can be used for what you want, e.g. salary, investments, marketing, etc. A microloan has a fairly high interest rate, but can therefore help companies with higher risk. In addition, the guarantee commitment is not more than about 20% on most loans, which reduces the risk that you take as the business owner.

Growth loans – A growth loan is for small and medium-sized enterprises. The purpose is to enable these SMEs to develop innovations and business concepts that generate growth and profitability.

Commercial loans – Here, there are really no formal restrictions on what you can borrow for, but co-financing if often required for the loan.

Venture capital can be a very good opportunity for the company that wants to grow at a fast rate.

Bear in mind that an investor may not always have the same ambitions as you do for the company's long-term plan. An investor will often want to become co-owner to make money from your company. A future exit is expected, which may be in the form of listing on the stock exchange, the sale of shares to other investors, or future profits. The general rule is that investors usually want to see a return on their investment within three to seven years.

• When should you raise venture capital? – There are different approaches to venture capital that you can take. You may think it is wise to raise venture capital as late as possible since you will have to give up fewer shares to attract a new owner if the company has a higher value. But, you also need to remember that some investors may come in with the right conditions to foster company growth in the form of contacts, expertise, etc. A good recommendation is to raise capital in connection with intensive, expansive phases since it is usually here – e.g. by creating better liquidity when orders come in at a faster pace – that venture capital really has an effect.
• Who should you raise venture capital from? – Do not underestimate the value that venture capitalists can contribute in non-monetary forms. Many venture capitalists have knowledge or contacts that are more valuable than the amount of monetary capital they invest. It is also important to raise venture capital from someone who “can afford” to invest more money if needed when it is time for new share issues.

• Where do you find investors? – The most common investors are the individuals in your contact network, your suppliers or customers. But, there are also associations of so-called business angels who have a large contact network of investors that they match with different companies. Incubators are a good starting point. They usually have a good idea of where to turn with your particular business concept.
  
• How should you present your business concept? – Investors want to invest in something that they believe will produce a good return on their investment. This means that they must believe in the business concept and the team behind it. By working on developing a selling business model and having a good pitch, you increase the chance of the investor understanding what the company will do. The team must therefore demonstrate that they have the potential to carry out the work, and it is a good idea to be prepared to answer a few critical questions. Do not underestimate the investors’ gut instinct or chemistry. They are also just regular human beings and may be persuaded by an enthusiastic presentation.
• How much money to raise? – You should always prepare a proper budget and proper implementation plan, which can indicate what your capital need is. You can then choose to try to raise your entire capital need from the very start. This can give you a little more peace of mind and allow you to focus on reaching your set goals. Another alternative is to raise money in stages. The advantage here is that you can increase your value before each new share issue and then get the most value for money. However, new work is required to raise capital with each new issue, and investors may become concerned if they have to invest more money.

A relatively new form of funding is crowd. This means that you present your company to the masses via e.g. fundedbyme or another crowdfunding site. Both big and small investors can go here, read about the company, and choose to invest a sum of money (based on your valuation and their available capital). This has also given smaller investors the opportunity to participate in start-ups.

Crowdfunding can be divided into two categories – Reward and Equity. 

With Reward, you offer your product or associated products to the investor instead of shares (normal way). When you reward your investors this way, it is like a carrot to sweeten the deal a little extra. For example, if you are going to sell a car, but have not yet raised the capital to manufacture the car and thus show and sell the car, you can offer investors the opportunity to pre-purchase the car and, for example, get winter tyres as part of the purchase. If they do not want to buy the car, but still want to support you, they can give a smaller amount of money and receive another type of gift for their support.

Equity is similar to more traditional investing activities, where you simply buy shares. But, instead of finding two major investors, crowdfunding makes it possible to find 200 smaller investors to become shareholders in the company.

Crowdlending, also known as peer-to-peer loans, is generally a blending of equity crowdfunding and a loan. You simply present your company and its capital need to small investors, who then lend money to the company. This is a little trickier than a regular bank loan, but it is a fun alternative in cases where a company wants to grow but a bank loan is not suitable due to the risk level or some other reason.

Regardless of which form of crowd you use, the presentation must be good. Unfortunately, it is not easy and many projects do not reach the finish line. But, if you have a good pitch and can convince people that you have a good business concept, you can get 100-some different ambassadors around the world who promote your company.

Grants and scholarships, also known as soft money, are a form of funding that can provide incredible opportunities for small and new start-ups. You would be surprised at the number of different places where you can find grants or scholarships for companies. For example, Vinnova and Almi are good places to check out now and then. Verksamt.se also publishes calls for proposals that can suit specific companies.

However, resources are not unlimited and there is some competition. You should try to highlight the factors the call for proposals is targeting. If the focus is on the environment, then show that you are focused on the environment. Generally, it is also important to show that:

• your idea has great potential. It should be unique and attractive, and there should be good opportunities for growth.
• the approach is feasible and the intended budget is both realistic and well thought out.
• you and your team have the right skills, will and capability to tackle the project's challenges. Otherwise, you need to indicate how you intend to overcome the various obstacles associated with your shortcomings.