Finance is the fuel needed to run any business. There are numerous stories of entrepreneurial ventures which could not survive despite having great potential tanking, due to shortage of funding. Getting fund is especially challenging when a business is in the startup stage. Hence, it is important for emerging entrepreneurs to be aware of the various startup company funding options.
According to a report, Indian startups raise a record $3.9 billion so far in 2019. So we have compiled a list of sources from where you can raise fund for startups, in India.
When loans are given by individuals or a group of people instead of banks and other financial institutions, such loans are known as micro-loans and the technique is called microlending. Micro-loans can be a good source of startup funding for small business. Microloans are unsecured loans. The credit score of the borrower is a guiding factor for the lender; it helps in deciding the interest that the borrower would pay to the lender in addition to the original principal amount.
Using an online platform, individuals interested in raising funds for their initiative can make use of crowdfunding. The investor gets some form of equity or reward in exchange for the contribution. KickStarter, GoFundMe and Indiegogo are some of the most popular and top-ranked crowdfunding sites. Crowdfunding is a good startup funding process because it is easier to acquire than traditional bank loans.
Line of Credit
Once approved for a ‘line of credit’, the borrower gets access to a pool of money. But only when he actually takes out some amount i.e. borrows from the pool, he is subjected to the interest that would be charged. The benefit of this type of loan is the low-interest rate charged as compared to bank loans or NBFC loans.
As the name suggests, equipment financing involves machinery or some other item instead of monetary funds at disposal. The idea is to allow businesses to save money on purchasing equipment and use the same for other purposes. So equipment financing can be the funding option for startups which require equipment and machinery.
Wealthy people who are interested in assisting the business owner through debt-free funding are known as angel investors. They ask for a stake in the ownership of the business and provide advises and suggestions from their own experiences. Such investors usually back early-stage startups that can generate a massive turnover in the future. So if you have great business plan, then approaching the angel investors can one of the best ways to raise capital for the company.
There are many venture capitalists that readily provides fund for startup. People often use the terms venture capitalists and angel investors interchangeably without understanding that there’s more than just subtle differences. Unlike angel investors, venture capitalists are proper firms aimed at helping businesses to develop. The venture capitalist plays an active role in running the business. Apart from purchasing stakes in the business, the firm has a say in the business’s decisions. There are two types of entities in such firms—‘limited’ partners who inject cash into the venture capitalists’ funds meant for assisting startups, and ‘general’ partners who work alongside the startup by engaging with the startup’s management in business-related decisions.
The central authority of the country also provides loans for startups in different sectors of the economy. In India, there are various schemes such as Credit Guarantee Scheme, MUDRA loan scheme and Stand Up India scheme under which the Government provides funds to startups.
Also there are schemes introduced by the State Government of different states of India, like Rajasthan Startup Fest, Kerela State Self Entrepreneur Development Mission, Sarothi startup loan by the Govt of Assam etc.
Peer to Peer Loans
In P2P lending, people (excluding banks and financial institutions) lend to those in need of money. Now, this may seem like crowdfunding but there’s a significant distinction: In peer to peer lending, the borrower has to repay the original principal along with the interest accrued. This isn’t part of crowdfunding, where the investors may not necessarily pay money to the lenders in exchange for their contribution; it could be reward exchange program as well.
Business Credit Cards
As the name suggests, business credit cards allow borrowers to access a pool of money with a credit limit for transactions. Credit cards are suitable for financing short term needs and immediate requirements. Just like ordinary credit cards, the card owner is liable to be penalized if the borrowed amount is not repaid in full at the end of the billing period.
Bank and NBFC Loans
Lastly let's talk about the traditional method of funding, the bank and NBFC loans. Banks provide term loans, working capital loan and asset-backed loans. NBFCs provide business loans too. But the issue with most banks and NBFCs is that they offer unsecured loans to only such businesses which have been in business for at least 2 years and which are earning a specific amount of profit.
While approaching someone for a loan for your startup, ensure that you have an excellent business plan. Business plan is the heart and soul of your initiative or project. It should cover the minute details, must be easy to comprehend, engaging and enticing at the same time. Above all, it’s the attitude brimming with confidence and the ability to convince that would either make or break the deal!
If you are thinking about long-term sustainability then funding is highly recommended. Funding also helps you to explore the current market opportunities as well. Hopefully, the above ideas will help you with your funding. Share this post with your friends and drop your comments.