Many people who want to start their own business, have a risk-taking attitude, and wish to expand their current business setup dream of becoming entrepreneurs. Every enterprise needs money at the beginning and during various operational stages, regardless of whether you are starting a new firm, are an experienced businessman, or are an entrepreneur. Every component, whether it be the need for working capital, adding employees, investing in office space, or even purchasing new machinery and equipment, calls for a consistent input of funds. It may be necessary to have a great idea, a capable leader, and most crucially, money to launch a firm. You must secure enough money as an entrepreneur to maintain the company cycle.
What are the sources of funding for a business?
There are some good sources of funding one can turn to for their business:
Bank or NBFC Loans
Every business need working capital. Even if your business generates a regular flow of income, you can turn to a bank or NBFC for funds. There are various types of Business Loans in India one can choose from – Working Capital Loans, Overdrafts, Small Business Loans, Secured Loans and Unsecured loans are some of them.
Angel Investors
Individuals, affluent businesspersons, or corporate leaders with large amounts of money to invest in various types of business ventures often help businesses get off the ground. These investors not only provide mentorship to entrepreneurs but also help in expanding their businesses with the help of their huge business network. Angel investing is best suited for young businesses or startups who have a great idea or product and are looking for a launch pad. You could approach an Angel Investor to invest in your business if you can convince them about receiving high returns on their investments.
Venture Capitalists
Venture capitalists are a set of wealthy individuals who provide capital to businesses exhibiting high growth potential in exchange for a stake in the business. They will want an equity stake in the company in return for their investments. You may approach a venture capitalist who may have a fair idea and expertise in your area of business to provide you with funds. Normally the ownership also gets shared between you and the external party. As a business owner, ensure you partner with a Venture Capitalist who understands your business model and is aligned with your business goals.
Also Read: 6 Critical Business Metrics To Monitor As a Business Owner
Crowdfunding
One of the sources for business could be Crowdfunding which is a great way to get varied individuals interested in your business idea. Your peers and other individuals who believe in your great idea can fund through crowdfunding platforms or social media websites.
Different types of crowdfunding that MSMEs can use:
- Equity-based crowdfunding is where the investor, in exchange for his investment, gets a small percentage of the share of the business.
- Reward-based crowdfunding is where individuals get a reward such as a free product or service in exchange for investing small amounts of money in the business.
- Debt-based crowdfunding is where an investor puts money with the understanding that it will be repaid with interest.
Government Schemes
The Indian Government aims to promote and support startups, Micro, Small and Medium Enterprises (MSMEs), women-run businesses and a host of other ventures through various Guarantee Schemes. Some of the Government schemes which can be considered as a source of funding for business in monetary or non-monetary terms are the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), MUDRA Loan Scheme, Make in India, Production-Linked Incentive (PLI) Schemes. Banks can help you with further information on the schemes and you can benefit from them.
Self-Financing your Business
Self-financing is one of the initial approaches that one can take to fund their own business through their savings, from commercial or residential property, or as gold bonds, even a family inheritance or savings from a previously successful business that can give you a good kick start to your finances.
Peer-to-Peer Lending
Peer-to-peer (P2P) is another commonly used source of funding for businesses which allows retail investors to lend money to peers or small business start-ups. Here the lenders’ involvement is limited but the rate of interest is high compared to other sources of funding. Based on the risk profile, peer-to-peer loans can start as low as 12% per annum and up to as much as 35% per annum. RBI regulates peer-to-peer lending which is beneficial for both lenders and borrowers equally. There are a few startups working in the space of peer-to-peer lending who act as an aggregator for investors and borrowers. Peer-to-Peer lending is good for stop-gap situations and having working capital requirements with quick approvals and disbursals.
Conclusion:
- Deciding and searching for the best funding option for your new business or to expand your existing business, business owners need to understand how each type of funding works. All this can be time-consuming and tedious. Many times, the self-funding amount may not be sufficient. Sometimes getting an Angel Investor could get tricky and crowdfunding can also be a challenging route.
- Keeping this in mind, you must study the pros and cons of all financing options and choose the best viable option basis your business goals.
