What is the one thing you need to start a business? Infrastructure, land, or funds? Of course, funds. What will you do without sufficient funds? Will you be able to run a business successfully with inadequate funds? It’s a flat NO.
Which door to knock when you are in dire need of funds? Well, there are several options in the market that provide funds to run any business, obviously implying several terms and conditions.
Let’s See What All Options Are Available In The Market.
- Bank loans\microfinance\NBFCs: Bank is the first door usually knocked by any entrepreneur. Almost all banks offer finance through different programs. The bank offers loans in two formats, capital loan and funding. The capital loan is nothing but the loan essential to run one complete cycle of revenue-generating operations, while funding involves the loan which is provided by studying the business plan, the valuation details, and the project report. NBFCs or Non-banking Financial Corporations, on the other hand, provide funds without meeting any legal requirements. In the current scenario, NBFCs are outperforming bank. NBFCs have given 15% customer satisfaction compared to banks. Provision of loans to individuals with poor credit rating, quick processing, competitive interest rates, and less rules and regulations are some of the noteworthy features that are attracting customers toward NBFC’s than bank.
- Venture Capital: Venture capitals are majorly professionally managed funds that invest in companies carrying huge growth potential. A venture capital investment may be ideal for small businesses that have surpassed the startup phase and already generating profits. They mostly invest in a business beside equity and exit when an IPO or acquisition comes into the picture. Be well-versed with all the terms and conditions, as some venture capitalists may ask for a large chunk of your business.
- Bootstrapping/Savings: This is the safest option of funding your business, but you should have sufficient savings. In this, you, as an entrepreneur, invest your savings since being a first-time entrepreneur, you may find it difficult to get funds. You can also get your immediate family or friends to invest in your business if you are falling short of funds. This is the quickest way to fund your business as it involves fewer formalities. However, a significant drawback of this funding is you may end up with less or no savings if your business fails to survive in the competitive market.
- Crowdfunding: It’s a new way of getting funds where more than one person invests in business via a loan, contribution, investments, or pre-order. Here, first, the entrepreneur has to provide a detailed layout of his plan, focusing on the needs of his/her business. Consumers who feel that the business will be fruitful, giving them returns in a specific manner, willingly invest in such ventures. One of the positive aspects of crowdfunding is that it generates interest along with marketing and financing the product.
- Angel Investors: You might have guessed from the name. People falling in this category have surplus cash and are willing to invest in catchy business ideas. They collectively scrutinise all proposals before investing. In this form, investing generally happens in a company’s early stages of establishment and growth. Angel investors prefer taking higher risks for businesses offering higher returns. This option has a disadvantage too. Angel investors provide lesser amounts of funds than venture capitalists and might also control a considerable part of your business.
- Incubators/Accelerators: If your business is at an early stage, you can opt for this option. Incubators nurture a business and help it grow from scratch by providing the necessary tools and training. Accelerators help the business to fly high and take a giant leap. You will be able to connect with mentors, fellow entrepreneurs, and investors with the help of this platform. You have to be real quick in running a business as these programs usually run only for 4-8 months.
- Government Programs: Programs such as MUDRA or Pradhan Mantri Micro Units Development and Refinance Agency Limited provide funds for many budding entrepreneurs. The initial corpus supplied under this scheme was 20,000 crores to around 10 lakh SME’s. Shishu, Kishor, and Tarun are three categories in the scheme under which loans are provided. You get a MUDRA card using which you can purchase raw materials, etc. Just be aware of the various initiatives run by the government.
Some other Funding Avenues
- Contests: Many contests are run for fundraising. All you have to do is keep your eyes and ears open. Contests provide you opportunities either to prepare a product or devise a blueprint. The only catch here is your plan should stand out from others. It should be highly profitable in the long run, which will help gain the confidence of investors.
- Product Pre-sale: Selling your products before launching it is a highly effective but an often overlooked option for raising finance for your business. It’s a unique way to increase cash flow and side by side, get prepared to fulfil the consumer demand.
- Selling Assets: This might sound like a silly step, but it might help you cover your short-term fund requirements. Once you overcome this crunch situation, you can repurchase the assets.
- Credit Cards: Business credit card is among the most readily available and instant options for financing a start-up. If you are a new business and do not have a lot of expenses, you can avail the benefits of these credit cards and keep paying the minimum amount. However, do keep in mind that the interest rates on the cards are pretty much on the higher side and can soar very quickly. Carrying debt can be harmful to a business.
he abundant options available in the market, you are spoilt for choice. Start running your business, calculating the risks associated.