The hardest part of getting started is not finding a business idea, but getting it started. And to get it going, capital is required. However, most entrepreneurs lack the necessary capital to drive their ideas. Not all are fortunate enough to come from families with ruby mines in South Africa. Finding financing to start a business is as important a step in starting a business as the business model itself.
In this publication, discover the financing options that exist to start a business in Mexico as a micro, small or medium-sized company (MiPyMES)
Financing between individuals
The first place to look for financing is among the people you already know and the friends of your friends. Likewise, the Internet also makes it possible to obtain investment with the support of individuals who are looking for more profitable alternatives to bank loans.
Among this type of financing, we find:
- Friends, Family, and Fools, also known as FFF, should be the first source of financing that entrepreneurs turn to. This is made up of friends, acquaintances, and family. If the entrepreneur cannot convince those closest to him of the viability of his project, how can he convince more experienced investors?
- Crowdfunding: It is a form of investment where several people offer money for the development of an idea, in exchange for being early adopters of the products or even a portion of the company. This form of financing allows the business idea to be validated and made known to a greater number of people.
- Crowdlending: In this case, entrepreneurs obtain loans at lower interest than they would obtain from a bank through third parties who expect to receive interest returns. In Mexico, platforms such as Kubo Financiero or Prestadero support both small companies and individuals with business activity.
Financing through private institutions
In this type of financing, we find investors who will support the company in exchange for its participation, as well as traditional banks that offer loans with interest rates that depend on the level of risk. In this group, we find:
- Angel Investors: Angel Investors help entrepreneurs with their experience and contacts to boost early-stage businesses. The Angel Investment Network portal connects angel investors with entrepreneurs.
- Venture capital: It is a type of financing for entrepreneurs with disruptive ideas and that promise accelerated growth. In Mexico, venture capital is incipient, but high-caliber players such as Softbank are increasingly entering.
- Bank loans: In Mexico, there are banks specialized in financing small and medium-sized companies. Likewise, commercial banking offers products for this sector. However, due to the high risk involved, these loans tend to have many requirements and are at a high-interest rate.
- Platform loans: Since most banks pose many difficulties for SMEs, in recent years other options have emerged, such as Konfío, which uses its risk measurement system for these companies.
Government financing depends to a great extent on the policies of the government in turn and also on each state of the republic. For example, the Peña Nieto government offered non-refundable support to entrepreneurs that ended with the current government. These are some examples.
- SME Funds: Both at the federal and state levels, there are usually support programs for small and medium-sized enterprises. In Mexico City, for example, there is the Fund for Social Development of Mexico City (Fondeso), while in Guadalajara there is the Jalisco Fund (Fojal).
- Nacional Financiera (NAFIN) seeks to contribute to the economic development of the country by facilitating the access of micro, small and medium-sized enterprises (MiPyMEs), entrepreneurs, and priority investment projects, to financing and other business development services, as well as contributing to the formation of financial markets and act as a fiduciary and financial agent of the Federal Government, which allows promoting innovation, improving productivity, competitiveness, job creation, and regional growth.
With recent-born unicorns, Mexico is a growing startup ecosystem. Funding is an important step for achieving global success for these companies. Nowadays, there are several options for entrepreneurs.