Methods of getting funds or loans for start-up business below are some of the financing techniques
Self-Finance: - This is one of the best methods to get funds for many of the business start-ups. It is much better than taking a loan and paying interest as you will be investing only the savings you possess. For very first-time entrepreneurs it is a life saver, a totally risk-free venture. When business advances to higher and higher stages then possibly a business loan would be a feasible option to opt for and the loan lenders will be more than willing to provide the loans considering the factor that the business has reached a stable state
Finding Good and Reliable Investor:- Individuals having surplus cash are called “Angel Investors”. They have a great investment to invest in new startup businesses throughout the world. There is a huge risk in the “Angel Investors” investments compared to getting a business loan from lenders and financial institutions. The risk is high since the investors expect higher returns on their investments to make huge profits. In India we have 3 popular “Angel investors”
- Mumbai Angels
- Hyderabad Angels
- Indian Angel Network
A start-up business can contact the above angel investors to get funding.
Crowdfunding:- This is one of the mechanisms of fund collection from more than one investor with the help of social networking platforms, web sites . There are online web portals existing for crowdfunding they raise funds for charities, events, disaster relief etc. With the same initiative crowdfunding investors can raise funds for first time business owners and start-up businesses . In India there are few Crowdfunding platforms such as Fundable, Wishberry, Milaap, Kickstarter, FuelADream, Catapooolt, Ketto, Indiegogo etc.
Government-Scheme loans :- Start-up businesses can apply for Government scheme loans. The government of India has multiple schemes for startup business loans for promoting rural India growth, for the benefit of small scale and medium scale enterprises , for educating the youth, encouraging women entrepreneurship, SC/ST category individuals, etc. Government is also trying to help start-up business by introducing few schemes like “MUDRA” which is part of “Pradhan Mantri Mudra Yojana (PMMY)” , “Trade-related Entrepreneurship Assistance and Development (TREAD)”, “Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)” , “Make in India”, “Atal Innovation Mission”, “Start-up India” , “Stand-up India”, etc
Procuring Loans from Public Sector and Private Sector Banks:-Banks are supposed to be the priority one option for Start-up business . Banks seem to be an extremely convenient and reliable source of securing working capital and business funds. Banks consist of 2 forms of funding which they can provide to the start-up business.
- Working Capital Loan
- Term Loan
Both public and private sector banks offer these above loans but the loan amount that can be given is based on eligibility criteria considering your credit score and the tenure and the repayment terms all vary from one bank to another bank. So, it is advisable to do some feasibility study kind of research and select the most appropriate bank suitable to the needs of the business.
Start-up businesses can obtain loans from Micro Finance Institutions (MFI) or Non-Banking Financial companies(NBFCs). You can avail this option when you are new to borrowing loans, do not have a good financial or credit history. The main disadvantage in this option is the interest rates are comparatively higher than that of the banks. Another option is to rely on credit cards for resolving loans related to business purposes. This is a great option for emerging enterprises in recent age. When you are in the very initial stages of your business, and you don’t require huge amount of money then you can use credit cards for any of your business transactions and do repayments promptly on time to avoid huge interest rates levied as penalties. You can incur huge debts if timely payments are not made.
Another method for Start-up business to obtain loans is Peer-to-Peer (PTP) :- This is a process of money borrowing and in this whole process there are no intermediaries involved. Borrowers get the money to invest from the lenders and for the lender it is like an investment where they have huge rates of interest compared to banks or NBFCs or MFI mentioned above.
Bootstrapping is a synonym for self-funding. This should be the first and the best option for a starter entrepreneurship start-up business. Getting funds at the very start is a painful process as there is no traction or any financial or credit history. This is suitable when you have some substantial savings, and the requirements are small. If you require business funding from the very first day, then Bootstrapping is not a suitable option to consider.
For crowdfunding option, you need to have your business strategic plan in detail, outlining the business model, the achievable goals, targets, profitability, the funding and the future demands and prospects and this needs to be put on social media platform and consumers if they are impressed with this idea will contribute the funding for this and hence start-up business can raise the working capital.
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