Lv.4 Preparing Travel Funds / How to Raise Funds for a Startup [Money & Financial Accounting] | Small Business Studies

Even for a small business, funds are essential for the journey of entrepreneurship

When starting a small business, many people tend to think, "I can start with a small amount." It is true that a small business can be started at a relatively low cost. However, no matter how small it is, you cannot run a business without the fuel called "funds".

Without funds, the journey cannot begin

It is easy to understand if you compare a business to a journey. You decide on a destination (vision or goal), prepare the necessary luggage (resources or skills), and proceed while sometimes dealing with detours or troubles.
To make this journey a success, you need fuel = funds which is essential. No matter how wonderful your ideas or plans are, if you do not have the funds to execute them, you will get stuck in the middle of the journey.

Why compare it to a "journey"?

Starting a business is truly the beginning of a journey. When preparing for a trip, you decide on a destination, pack your bags, and think about transportation. Business is the same.

• Decide on a destination (vision/goal)

• Gather necessary equipment (skills/knowledge)

• Plan the route (business plan/marketing)

• Prepare fuel (funds)

Without funds, you cannot start the journey. Just as a car cannot run without gasoline, a business cannot move forward without funds. It is precisely because it is a small business that you are required to maximize the use of limited resources and secure funds strategically.
A business is like an RPG game—deciding on a destination, gathering companions, and overcoming troubles to reach the goal. That is why the fuel called "funds" is essential. Next, joining as a navigator is [Money & Accounting Manager] "Finan."

Next, joining as a navigator is [Money & Accounting Manager] "Finan."

It's very easy to understand when you compare funds to fuel. Thank you! Finan

Business and travel are the same. It won't continue without the fuel called funds, right?

Because it's small, how you use your funds is important

Unlike large-scale businesses, in a small business, how you use your funds determines the success or failure of the management. To achieve the maximum effect even with small funds, you need to eliminate waste and invest in the most important parts.

✔ Create a funding plan
It is important to clarify "where and how much money to spend" and set priorities. The initial funds required for a small business are roughly divided into the following three:
1 Capital Investment: Interior and equipment for stores or offices, purchase of computers and equipment, etc.
2 Operating Funds: Personnel costs, material costs, utility costs, etc., until the business gets on track.
3 Marketing Expenses: Advertising, website creation, SNS promotion, market research, etc.

It is natural to worry about "how to prepare these expenses." Especially in small businesses, since self-funding is often limited, it is necessary to understand appropriate fundraising methods and prepare strategically. It is essential to save money systematically and prepare funds. However, the reality is that there are cases where that alone is not enough.
The success of the journey called business is determined by the initial funding plan—let's prepare well for the startup so that your business proceeds smoothly.

Choose startup funds correctly and raise them correctly—3 points for small business funding strategy

1) Create a "good business plan"!

The success of your fundraising depends on your business plan. To financial institutions and investors, your business plan is a map to the future itself. Without a plan that makes them think, "I can safely entrust my funds to this person," it will be difficult to obtain satisfactory loans or investments. Conversely, if you can only present a vague plan, you will not only cause anxiety but also increase the likelihood of being refused funding or investment.

Why is a business plan important for loan screening?

"What will you use the funds for, and how will you recover them?" This is something financial institutions will always ask you. If you cannot provide a clear answer to this question, raising startup capital will be difficult.
For example, the funds a bank lends are the precious assets of its depositors, not just an offer of a business opportunity. Since certainty of repayment is the most important point in the screening process, you must convince the financial institution based on well-founded documentation detailing the business.

"I'm still anxious and worried about money..."

"That's why you need systematic preparation."

What is the role of a business plan?

A business plan is not just a plan, but a 'certificate' for moving funds.
It is required to clearly show "how you will develop the business and how you will secure sales and profits". In other words, by logically explaining the consistency of income and expenditure and future potential, you get them to judge that "it is safe to lend to this business." "What is the basis for your sales forecast?" "How much working capital is needed?" "Where will the source of repayment come from?"—if you cannot explain these questions with evidence, it will be difficult to pass the loan screening.

To raise funds, you need to clarify points such as the following.

• Sales Forecast: What kind of products or services will you provide, and how much sales can you expect?

• Income and Expenditure Plan: What are the necessary expenses and profits? Show concrete numbers.

• Market Analysis: How well do you understand your target customers and market needs?

For financial institutions, it is most important that the lent funds are used appropriately and recovered reliably. It is not just a list of numbers, but a "realistic and executable plan"—as the borrower, you should not just think "I want to borrow money," but need to have the perspective of "how to eliminate the risk for the financial institution".

* Creating a business plan will be explained in detail in ✓ [Lv.6 Creating an Adventure Plan].

2) Have multiple options

Relying on a "single option" for fundraising only increases risk. It is important to broaden your options for risk hedging in case a loan is refused, and to raise funds under better conditions.

"Is it important to have multiple financial institution options?"

"Having multiple options allows you to make calm, unhurried decisions."

Benefits of Expanding Your Options
✔ Risk Diversification: By not relying on a single financial institution, you mitigate the impact of unexpected rejections or changes in terms.
✔ Improved Negotiating Power: By comparing multiple institutions, you can secure more favorable terms.
✔ Optimal Capital Procurement: You can choose the best method based on the stage and characteristics of your business.

Main Capital Procurement Options

• Credit Unions: For small businesses, credit unions and public loans have lower hurdles and are suitable as initial funding sources.

• Japan Finance Corporation: A government-affiliated financial institution specializing in startup funding, offering easy access to low-interest loans.

• Crowdfunding: Allows you to raise funds while verifying market needs.

• Internet-only Banks: Speedy procedures are a key attraction. Banks like GMO Aozora Net Bank, which offer unique plans for corporations, are also gaining attention.

• Angel Investors / Venture Capital: Raising funds from investors willing to take risks.

In capital procurement, "having options" is the same as having insurance against an uncertain future. The attitude of not clinging to a single option but flexibly exploring other methods becomes an important element that supports business stability and growth.
Combine the funding methods that suit your business and build a flexible strategy.

3) Start moving early

Capital procurement is a "race against time." Since loan screenings and procedures can take longer than expected, starting preparations several months before launching the business is the key to success.

Why is early action important?
✔ Financial institution screenings take time
✔ You may be asked to revise plans or submit additional documents
✔ Preparing with a buffer allows you to negotiate for better terms

For startup loans from the Japan Finance Corporation or credit unions, "planning" is emphasized. It is ideal to proceed with funding based on a plan that says, "I want to be here in six months," rather than "I need money right now!"
Having a concrete timeline—such as creating a business plan 6 months before opening, consulting with financial institutions 4 months before, and applying for loans 2 months before—makes it easier to take action.

Capital procurement is not scary if you proceed with the "correct steps." Startup capital is not just something you borrow, but something you secure strategically.

Three steps

Small business capital procurement is about strategically combining options. Now, I will introduce the method in three specific steps.

① Utilize "Specific Startup Support"

When starting a small business, the most important thing when raising capital is to build a 'solid foundation for fundraising'. This is where the 'Specific Startup Support System' becomes effective. By utilizing this system, you can receive benefits such as startup loans, tax incentives, and subsidies, which significantly lowers the hurdles to raising capital.

Benefits of Utilizing Specific Startup Support
✓ Reduction of Registration and License Tax
→ Example: Registration and license tax when establishing a corporation is halved (usually 150,000 yen → 75,000 yen)
✓ Easier access to startup loans
→ The guarantee limit of the Credit Guarantee Corporation is expanded, making it possible to obtain loans without collateral or guarantors
✓ Preferential treatment for subsidy applications
→ Utilize the startup quota of the 'Small Business Sustainability Subsidy' to receive up to 2 million yen in subsidies

Process for Utilizing Specific Startup Support
1 Consult with your local municipality or Chamber of Commerce: Obtain information on startup support seminars and courses in each municipality
2 Take the required courses (about 1-2 months): Learn how to create a business plan, know-how for raising capital, etc.
3 Obtain a support certificate: Apply for various preferential measures based on the certificate issued after completing the course

'I didn't know there was a system with so many benefits!'

'Many people don't know about it. It's a beneficial system, so I really want you to use it.'

'Specific Startup Support' is not just a procedure for subsidies and loans, but also a place for practical learning to get your business on track. To reduce management risks immediately after starting a business and to ensure a solid start, be sure to utilize it. Detailed conditions vary depending on the target municipality. Don't forget to check with the municipality where you intend to receive support.

② Build a funding strategy that selects the optimal financial institution and considers a combination of multiple sources

In small business fundraising, it is important to choose a financial institution that matches your company's characteristics. Not all financial institutions offer loans under the same conditions, so it is important to understand their respective characteristics and make the best choice.

1. Community-based Financial Institutions (Credit Unions/Regional Banks)
Credit unions and regional banks are strong allies for small businesses
✓ Flexibility in lending
- They have a better understanding of the actual conditions of small businesses than city banks, and consider loans by evaluating business conditions and contributions to the local community
✓ Building trust
- By maintaining continuous communication with the representative, additional loans and management consultations can be handled smoothly
✓ Extensive management support services
- In addition to loans, you can receive tax and management consultations and support for matching with experts

2. Japan Finance Corporation
The gold standard for public loans for small businesses
✓ Loans available without collateral or guarantors
- Compared to private financial institutions, it is easier to receive loans even if you have little track record at the time of startup
✓ Low-interest loans
- As a government-affiliated institution, interest rates are set lower than market rates
✓ Ideal for long-term financial planning
- Repayment periods are set longer, which can stabilize cash flow at the time of startup

3. Internet-only Banks
A new era of financial institutions that are speedy and smooth
✓ Procedures completed online
- There is no need to visit a branch, and the screening process is speedy (as fast as one day)
✓ Available at low cost
- Because there are no branch operating costs, interest rates and fees are lower
✓ Unique loan plans
- Example: GMO Aozora Net Bank offers special loan plans for small businesses

By combining and utilizing loans, you can diversify your fundraising risks.
✓ For example...

• Borrow initial capital from a credit union and receive community-based support

• Procure short-term operating funds from an internet bank to reduce the burden of procedures

• Use the Japan Finance Corporation as your primary source for startup funds and create a stable financial plan.

Choose the optimal financial institution and plan your fundraising to suit your business.

"There are so many options. In a way, that's a relief."

"As a small business, the secret is to be flexible in choosing financial institutions too."

3. Make the "Japan Finance Corporation" your primary choice for startup loans

When considering startup loans for a small business, the top priority should be the "Japan Finance Corporation." Because it is easy to use even without a track record, offers low interest rates, and has public credibility, it is the optimal choice for small business fundraising.

Reasons to utilize the Japan Finance Corporation
✓ Easy to borrow even without collateral or guarantors
✓ Low interest rates and long-term loans are possible
✓ Easier to pass screening even without a startup track record

Key points for receiving a loan
"The business plan is the key"
In loan screening, the content of the "business plan" is given the most weight.

• Clarify sales forecasts
  → The more concrete the revenue model, the easier it is to pass screening.

• Describe the use of funds in detail
  → Explain how the funds will be used and how they will grow the business.

• Clarify the motivation for starting the business
  → Why are you starting this business? Convey your strengths and passion as an entrepreneur.

• Create a solid repayment plan
  → Plan and explain in detail how you will make repayments.

Make loans with credit guarantees your second option
"I'm worried about relying only on a Japan Finance Corporation loan..." In that case, utilize loans with credit guarantees.

• You can coordinate with private financial institutions to raise more funds.

• By diversifying across multiple financial institutions, you can reduce financial risk.

By combining these, you can achieve sustainable fundraising and build a foundation for business success. Make good use of both the JFC and credit guarantee associations to efficiently proceed with your startup fundraising.

The point to be careful about here is that applying for a loan with zero personal funds is not realistic.
This approach is hard to call "sound," and the reality is that the feasibility of obtaining a loan becomes extremely low. Even if you were able to raise funds, being in a state with absolutely no personal funds would make subsequent cash flow and operations suddenly difficult.
To gain the trust of financial institutions and get off to a stable start, preparing at least about 1/4 of the desired funding amount as personal funds is realistic and serves as a benchmark for a stable business start.

That said, this attitude toward loans has been changing little by little in recent years. In particular, loan policies that do not require joint guarantees from representatives are spreading, and financial institutions are steadily increasing their track record in this area. This is a very important change for small businesses and can be said to be very significant.

"Is it becoming less common for individual representatives to provide joint guarantees?"

"That's right. This change is a really good trend for small businesses, isn't it?"

Also, the use of the "Shoko Chukin Bank" is steadily spreading in the small business sector as well.
Although it is a government-affiliated financial institution like the Japan Finance Corporation, its role has primarily been to complement private financial institutions until now. However, a shift in policy with an eye toward positioning itself as a "main bank" for small and medium-sized enterprises is underway, and its presence is growing.
Even for small businesses, it is well worth considering Shoko Chukin as a strong potential source of funding.

Fundraising is a business matter, but at the same time, it is also a means to protect the future of "you yourself" as a small business owner and your "family". As preparation to protect "ourselves," let's start working on this seriously now.

The success of a journey is determined by the initial financial plan

When you go on a trip, what do you prepare first?
A map, a destination, belongings, and most importantly, travel expenses = budget. If we compare it to the "adventure journey" of a small business, it is no exaggeration to call it your life or "HP".
No matter how much passion you have, no matter how good your ideas are, if you set off without a budget plan called "funds," you will end up stranded when you run out of fuel.
In other words, the initial financial plan greatly influences the future of that journey.

A financial plan is the "map" and "timetable" of management

For a small business, a financial plan is not just about "how much is needed?"

✓ At what timing
✓ What to use it for
✓ How to recover it?

Visualizing this series of flows becomes part of the business blueprint and also a timeline for action.
Raising and using funds is the power to foresee the future. That is precisely why, if the initial design is vague, the possibility of getting lost along the way increases.

Focus on "saving" rather than "spending"

When fundraising goes well, people get a little overconfident.
Thinking "Now I can rest easy!", they spend it generously. However, that is only the beginning of the journey.
In a small business, cash = "lifeline", which is why the perspective of "how much to keep?" and "how to endure?" is important.

✓ Cash flow that can withstand 3 months no matter what happens
✓ Financial leeway to make the next move even if sales don't go as expected
✓ Minimum reserves to withstand unexpected expenses

All of that is determined by your initial financial plan. Also, when it comes time to actually "spend" money, where you spend it determines success or failure. The "order and purpose of spending money" is very important, and above all, operating on a limited budget is what small business management is all about.
Because you have little money, the way you spend it makes all the difference.
This is the greatest reality of small business, and at the same time, it is also your greatest opportunity..

A financial plan is not a "wish," but a "strategy."

Management does not move forward with the attitude of "it will work out somehow." A financial plan in management is not a place to write down dreams and hopes, but a place to reconcile reality with strategy. Hopes and expectations are not enough to protect your family. In small business, business failure = impact on life is very significant. The responsibility for joint guarantees and loans can weigh heavily on the business owner personally.
That is why having a "realistic and sustainable financial plan," rather than naive outlooks or wishful thinking, is the greatest preparation to protect yourself and your family as a business owner. Raising capital is not just about "getting money ready."

How will you utilize that capital? How will you spend it, protect it, and grow it?

That plan becomes the "lifeline" of your small business. That is why the success of your journey is determined by your initial financial plan.
Do not set sail on hope alone; carry a map called numbers, and with calm judgment and burning passion, prepare thoroughly for the adventure that is your small business.

*The following is an introductory video for the program offered by Small Business University.

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