Planning to start a business? Have you ever considered capital or fundraising for business? Business funding is required to launch any business, whether it is an MSME or a large enterprise. Fundraising gives your business initiatives a strong foundation and helps them expand and grow. It can be challenging and exhausting to raise funds for a business. To make it easier for you, we have compiled a few important financing techniques that will assist you in fundraising for business.
Self-Financing the Business
Many new businesses use self-financing or personal savings as their primary source of funding. “How much capital will you be investing in your business?” is a question that is asked regardless of whether you take out a loan, approach a venture capitalist, or ask a government agency to fund the business.
The wisest course of action for business funding is to invest their own money. After a few months of business, you can easily look for business loans and lenders shall not have any reason to deny you as they will look into the stability of the business, as it will be a low-risk bet for them.
Getting an Angel Investor on onboard
Angel investors are people with extra money who are interested in funding start-up businesses both in India and around the world. Compared to loans provided by financial institutions, the risk associated with these investments by angel investors is higher because the rewards on their investments are expected to be larger.
| Popular Angel Investors |
| Mumbai Angels |
| Indian Angel Network |
| Hyderabad Angels |
These investors are available for direct contact with startup entrepreneurs seeking business funding.
Crowdfunding
The idea behind crowdfunding is to raise money from a large number of investors through online channels like social media and business-focused websites. Online crowdfunding web portals raise money for a range of other causes, organizations, projects, events, disaster assistance, etc.
This notion or idea supports social and cultural reasons while simultaneously earning money for new businesses or first-time entrepreneurs. Kickstarter, Ketto, Catapooolt, FuelADream, Fundable, Indiegogo, Milaap, Wishberry, and others are some of the top crowdfunding websites in India.
Loans Under Government Schemes
Government schemes are another channel worth looking up to in case you’re looking to fund your business. The Indian government has introduced a number of loan programs with the goal of helping new businesses, SMEs, MSMEs, Small Scale Industries (SSIs), for fundraising.
| Scheme |
| MUDRA loan program under the Pradhan Mantri Mudra Yojana (PMMY) |
| Start-up India |
| Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) |
| Stand-up India |
| Make in India |
| Trade-related Entrepreneurship Assistance and Development (TREAD) |
| Atal Innovation Mission |
These are a few of the loan programs launched by the Indian government to help businesses in the process of business funding.
Loans from Private and Public Sector Banks
For start-up businesses, banks are viewed as the top priority because they are a more dependable and practical source of fundraising. Term loans as well as working capital loans are two ways that banks finance new businesses. In India, almost all the public sector and private sector banks provide loans for new businesses. The interest rate, size of the loan, and repayment period offered, however, will differ from bank to bank.
Small Business Loans from NBFCs or MFIs
It will be challenging to obtain loans from private or public sector banks for a newbie because of no credit history or low credit score. To apply for a startup loan, check your credit score and then get in touch with a microfinance institution or non-banking financial company. In comparison to PSU banks, NBFCS and MFIs provide interest rates that are relatively higher.
Business Credit Cards
Since start-up businesses have become more prevalent in recent years, the use of credit cards for commercial purposes has increased. Using credit cards for transactions and promptly returning the balance will help you avoid debt and extra interest rates paid in the form of penalties in case your startup does not initially require big sums of cash.
Peer-to-Peer Lending
Peer-to-peer lending is a sort of money borrowing in which there are no intermediaries during the entire business funding process. Borrowers receive money at their disposal to invest in their start-up from lenders who lend money to them as an investment.
As a result of the greater interest rate offered in this process compared to banks, NBFCS, and MFIs, lenders can profit from the borrowers. For the benefit of both lenders and borrowers, the RBI regulates peer-to-peer lending organizations. Peer-to-peer lending is a sort of business funding for new businesses, but for the lender, it is considered an investment.
Conclusion
Fundraising for business can be difficult, especially if you’re a startup. You may even have a great business idea, but still, get stuck in the process of how to raise funds for business. Thankfully, there are many different ways for business funding.
If your business grows quickly, you will probably need outside financing. You may only be able to take advantage of market opportunities if you bootstrap with external funding for a short time.
Despite the many lending options available today, responsible business owners should consider how much financial assistance they really need while planning how to raise funds for business.
The key question right now is: How do you get your company ready for business funding? It is better to implement solid corporate governance from the outset because it could be challenging to go back and try to enforce it afterward. Invest in a reliable accounting program and manage your finances to allay these worries.
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General FAQs
1) Who can apply for a small business fund?
Business types such as partnership firms, private limited companies, and self-employed individuals can apply for small business funding.
2) What is a Unicorn?
A unicorn is a startup Company that has crossed a 1 Billion USD valuation in a funding round.
3) What are the various ways of business funding?
These are different ways of business funding for growth and expansion :
- Seed Capital
- Self Funding
- Angel Investor
- Venture Capitalist
- Loans from Banks
- Working Capital Credits and loans
- Funds arranged by Business Incubator
- Funds from government Schemes
- Funds from winning Contests
- Loan funds from NBFCs