Businesses are primarily driven by the unique ideas that build them. However, the lifespan of a business is entirely dependent on its ability to sustain and grow. Which means it requires money; technical equipment, office space, website, initial financial security to pay bills and so on. You require at least a little bit of financing to get going with your small business idea. Therefore, understanding the concept of business funding for start-ups is significant to succeed.
Starting your own venture could seem like a nightmare, but it’s worth it! Studies prove that 94% of start-ups or new companies fail to sustain during their first year of operation. Coming up with a billion-dollar idea for a new company is cool. But, the journey from having a view to building a profitable business can be challenging. In that case, how to finance a start-up business? Funding mainly requires you to understand the nature and type of your business thoroughly.
Do you want to take a tour to find out how to get funding for a business idea? Congratulations! You are at the right place. This article is a part of our comprehensive guide on small business ideas – explore the small business funding guide to know the effective financing options recommended for Indian enterprises. From traditional bank loans, lenders to alternative financing methods here’s everything you ought to know to fund your business idea.
10 Funding Options to Raise Capital for Your Small Business Ideas
Bootstrapping, also known as self-funding, is the go-to funding option for most business owners. It is proved to be the most effective form of financing a start-up or enterprise, especially while starting. Entrepreneurs prefer funding their enterprise by accumulating any personal funds they can find. It could be their savings, or a share from their family members/friends, credit cards, or home equity lines. Raising funds within your closed circle reduces the stress of paperwork or compliances.
Usually, it is ideal to utilize the money you have rather than borrowing capital. Experts suggest that business owners must continue to bootstrap until their venture turns profitable. It is an excellent approach towards potential success and rids you of the burden of paying interests. Moreover, people tend to work hard when their own money is on stake. When you want to scale your business at a later stage, you can consider pooling in outside sources for financing. All-in-all, bootstrapping can be the medium for expanding resources both financially and non-financially.
2. Angel Investors
The second-best funding option for your new business is to approach angel investors. Who are angel investors? You can usually find this type of investors in networking groups where they selectively collect proposals for investing. These passionate investors are one’s that helped launch high-profile companies like Google, Yahoo and Alibaba.
Angel investors are more likely to invest in your small business, provided you approach them in the early stages of your enterprise growth. These investors throw themselves in risky scenarios while investing to obtain higher returns; expecting up to 30% capital gain. If you think this is an ideal business funding option, look out for some of India’s famous angel investors and draft a precise plan to pitch them.
3. Venture Capitalists
Venture capitalists are an ideal funding option if your company requires higher capital sourcing. These investors are likely to dig deeper into your business plan before bringing a tremendous amount of money into your enterpise. Venture Capitalists prefer investing is businesses that stand out from the rest.
Alongside investing venture capital, they also expect a return of 3 to 10 times more than their original investment cost within a timeframe of 5-7 years. Quick tip? Better keep an exit strategy ready. Tap into your contacts to hunt for a venture capitalist; a cold approach is less likely to fetch positive results.
Crowdfunding has gained immense popularity lately. The new funding option has been providing a financial boost for several businesses in India. It is a platform that allows businesses to pool some small investments from multiple investors rather than depending on a single source of investment.
You can benefit from crowdfunding by increasing your initial working capital required to start your business. Do read about various crowdfunding platforms for stock option before selecting one. Selective platforms might charge payment processing fees or demand business owners to uplift their financial goals to preserve the collected funds.
5. Invoice Financing
Invoice financing is one of the best funding options to maintain the cash flow your business requires for daily operations. This funding option is also known as factoring, where your service provider lends you money from your accounts receivables that you can pay back when your customer scans the invoice. Invoice funding is a great way to bridge the payment gaps between your business bills/payments and your suppliers/contractors. It allows a growing business to accept new projects and provide effective results.
6. Business Incubators & Accelerators
Considering incubators and accelerators to raise money for the business at an early stage is a good idea. These funding programs have been popularly helping businesses in India and are available in every possible city. Their utility is interchangeable despite the fundamental differences between them. They operate by providing training tools, business networks, and support for enterprise growth.
Incubators help nourish and aid businesses in standing out in the market place, wherein accelerators assist the business in taking a big jump that helps keep them running. These programs typically demand 4-8 months of commitment from the business owners. It helps develop great relationships with mentors, investors and other competitors.
7. Partner Financing
The strategic partner financing is one the commonly known funding option. You can get a trusted partner interested from your industry to invest in your venture in exchange for exclusive access to your business data, products, items, distribution channels, sales or a combination of all these elements. Due to the commonalty, this funding option is usually overlooked.
You can also partner with another company that can boost your business growth. It is considered a risk capital that offers a share in sales; it can either be equity-based or commission-based. Partnering with large companies helps build a better network of clients, suppliers and provides access to great marketing programs.
8. Bank Loans
Conventional banks in India offer business loans, provided you have necessary proof and records. You can easily avail these loans if adequate assets back your business. Banks usually provide various financing options; with an ideal business plan, you can quickly secure your funds by availing loan programs. What to do in case you are not eligible to request for a bank loan? You can always lean on microfinance funding to access financial services when you can’t rely on traditional banks. They have limited requirements whose credit ratings are not influenced by the banks.
9. Government Programs
One of the most reliable funding options for entrepreneurs and start-ups in India are government programs. The Government of India launched a start-up fund project worth Rs 10,000 crore under the Union Budget to strengthen SME’s ecosystem in India. Further, the government also launched “Bank of Ideas and Innovations” to encourage innovative products and business ideas.
The government supports the “Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)” to help spread the benefits to around 10 lakh SME’s in India. Under this scheme, business owners are provided with a MUDRA card post-approval of the loan amount request. It acts like a credit card through which business owners can purchase raw materials and cover other expenses.
In addition to central government schemes, the state government has also established various programs, Kerala State Self Entrepreneur Development Mission (KSSEDM), Rajasthan Start-up Fest, Maharashtra Centre for Entrepreneurship Development, so on to support small businesses. Besides, SIDBI – Small Industry Development Bank of India also provides commercial loans to the MSME sector.
Provided enterprise meets the eligibility criteria, government schemes and programs are the best funding options compared to the rest. It is vital for business owners to educate themselves about various government initiatives; research thoroughly about the Indian government’s Start-up India Action Plan. Recently, GOI announced a new program – “Atmanirbhar Bharath”, a package to combat the COVID-19 economic crisis.
10. Quick Financing Options
Funding options for enterprises have increased drastically over the past decade. Apart from the popular financing option mentioned above, you can also try out other ways to raise capital. Although these options may not apply to all enterprise types, it’s worth exploring these options.
Selling your products before the official launch is an effective funding strategy. Sadly, not many businesses in India follow this funding approach. Some of the most popular companies worldwide follow this funding option to improve their cash flow and prep themselves for the consumer demand.
Asset sale can be a daunting process in terms of raising funds. But look at the bright side, it helps meet the short-term enterprise requirements and finances. You can always re-purchase the assets once your venture becomes stable.
Having a business credit is a boon; it is the best funding option that provides instant cash. If your new business idea doesn’t require a lot of investment, you can use business credits cards to cover your small expenses. However, beware of the interest rates and card costs. They can sum up into a large amount and accumulate in no time.
Finding the best financing option can be the most challenging part of starting a business. It takes a clear understanding of your business model to decide what option best suits your enterprise requirements. However, once you crack the deal, save some capital, get your loan approval, or outsource money from investors, you will likely see your business grow. Although it might take quality time for you to succeed in this journey, your dreams will undoubtedly turn into a reality. Finding allies along the road; friends, investors, capitalists will ease your burden.
Businesses in India must focus on their finances in their early stages and later. Is your small business ready to see the limelight of success? Implement an all-in-one business intelligence software that keeps you up-to-date and modern. You can always rely on Imprezz cloud-based invoicing software to streamline your small business accounting. The GST billing system will help keep your business GST compliant.
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