Whether you’re starting up a new venture or have an on-going business, various business ideas come and go. However, what matters is their execution. Executing business ideas is what will give shape to your business. For this execution, you need different resources which needs funding.
Did you know that more than 1200 start-ups come up every year (the number is increasing every year)? But 90% of them fail due to lack of innovation and operational cost funding. Yes, it’s true. When you’re working on a new business idea, you need people, a website, office space, marketing, and so much more.
And to have all this, you need money. Not just for setting up but also to grow in the industry, you need working capital to cover your operational costs. That is why the concept of funding is so important to understand. Before we dive into different ways to raise funds, let’s talk about types of funding.
There are three types of funding for you to choose from – debt, equity, and grants.
- Debt is the most popular type of funding. We all know how the debt funding works where you are obliged to pay back the money you borrowed with interest. Debts include loans and money spent using credit cards.
- Equity is the kind of funding raised by giving up a certain percentage of company ownership to the investors in exchange for money. Such investors are venture capitalists (VCs) and angel investors.
- Grant is an approach opted by small businesses and non-profits to raise money by various government schemes entitled to support with financial aids such as Start-up India.
Now that you know the major categories to get funding for your business idea, let’s dive into details of the various ways of getting those much-needed business funds.
The term bootstrapping itself means ‘pulling oneself up by one’s bootstraps.’ Linking this phrase to business, bootstrapping a business means funding a business by the founder’s own money or the company’s revenue. For start-ups or small businesses, Bootstrapping is an excellent way to fuel the business with funds without any collateral. It’s beneficial because there are no documentation or formalities involved. Self-funding your business is also beneficial for these businesses because by opting for this method, you won’t have extensive loans & monthly payments weighing on your shoulders, especially when your business is on a downward slope. To conclude it in a sentence, bootstrapping is a mode of quick funding for small businesses and start-ups.
Friends & Family Funding
It is said that one should never mix personal life with business. But sometimes, in the hour of need, exceptions can be made. When you’re looking for minimal capital for quick funding for your small business idea, it never hurts to ask your friends and family to invest in that. However, when you’re opting for this medium of business funding, you have to remember two key factors.
First, you need to make sure that you share a healthy relationship/bond with them, so there’s no bad-blood scenario later. Secondly, remember that your friends and family are investing in you and not necessarily in your business. Therefore, you need to reassure them (and be true to your word) that you’ll be returning the dividends as and when you acquire it. Also, don’t depend on this source solely and pressurise them for the funding. This is only a quick funding option to kick-start your small business idea.
Loans from NBFCs
NBFCs or Non-Banking Financial Companies are establishments that provide financial aids and are covered under the banking regulations of RBI. These financial institutions offer banking services, such as small business loan funding without security. With their online application process, you can fill your application and upload documents online hassle-free.
NBFCs let business owners avail business funding (loans) with basic eligibility criteria and minimum documentation, without collateral. NBFCs are gaining popularity in the financial market as they are safe, efficient, and a medium for quick funding for small businesses.
The term crowdfunding is gaining more and more popularity in the past few years. But what exactly is crowdfunding? It is a process of raising business funding from a large number of individuals via social networking to finance a business venture. This is the ideal mode for quick funding for small businesses or start-ups, especially for those who don’t qualify for bank loans.
It is a means to raise money without giving away equity or bearing the burden of interest of loans. And it is a simple process. All you need to do is list your raising amount on a crowdfunding platform with a description of your company. If the idea is appealing to the crowd, they would willingly fund your business idea in exchange for becoming a priority customer for your products/services.
Angel Investors / Venture Capitalists (VCs)
Whether you’re a start-up or an SME/MSME business, angel investors and venture capitalists will be a good option for your business funding. Though these third party investors are there to aid you with quick funding for small businesses, their criteria may slightly vary. Angel investors are a group or individuals who invest their own money in companies which are at their early stages of growth in exchange for some equity ownership.
Whereas, venture capitalists are business professionals who like to invest in SME/MSMEs, where they see growth and good returns. VCs usually put a 5-year time frame on recovering their investment with good returns. They don’t provide business funding to those companies that need coaching about growth.
Bank Loan is the first option that hits any entrepreneur’s mind while looking for business funding. It is the traditional practice which involves dealing with various local banks (private or government) – mostly the ones you’re already associated with. However, applying for a bank loan can be a tedious job.
The process can take anywhere from a few weeks to a few months. Not only that, you will be required to deposit some collateral and prove your creditworthiness to the bank as well. Because of such strict rules and procedures along with higher interest rates, bank loans have become less favourable by start-ups, SMEs, and MSMEs lately.
To foster the growth of the business sector, the new government of India led by PM Narendra Modi has dedicated itself to encourage young entrepreneurs for their start-ups. To do so, they have launched an initiative of Start-up India that aims to fund 10000cr. Rupees to start-ups by 2020.
Under MUDRA Yojana, a government loan scheme, budding entrepreneurs can raise up to Rs.10 lakhs business funding, depending on the type and scale of business. This loan scheme is divided into three categories – Shishu (loan up to 50,000), Kishor (from 50,000 – 5 lakhs) and Tarun (from 5 lakhs-10 lakhs).
Among the various sources to raise business funds, you need to decide what you and your business want. The best options, however, would be to choose from loan options that grant you quick funding for your small business with low-interest rates and without any collateral. NBFCs such as ZipLoan can be a blessing in disguise for all those small businesses in need of financial aid without many formalities.