Whether you are starting a new venture or have an ongoing business, various business ideas come and
go. What really matters is your execution. However, when you are executing business ideas, what
will give shape to your business. For this execution, you will require different resources which need
funding.
And to have all of this, you need money. You need working capital to cover your operational costs,
not just for setting up and growing in the industry. However, that is why the concept of funding is so
important to understand. And, before you 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: It is the most popular type of funding. You should be aware of how debt funding works where
you are obliged to pay back the money you borrowed with interest. However, debts also include loans
and money spent using credit cards.
Equity: When it comes to equity it 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: It is also an approach for small businesses and nonprofits to raise money by various
government schemes entitled to support with financial aids such as Start-up India.
Now that you are aware of the major categories to get funding for your business idea, let us dive into
details of the various ways of getting those much-needed business funds.
Self-Funding/Bootstrapping: The term bootstrapping means ‘pulling oneself up by one’s
bootstraps.’ When you are linking this phrase to business, bootstrapping is a business that means
funding a business with the founder’s own money or the company’s revenue.
Bootstrapping is an excellent way for start-ups or small businesses to fuel the business with funds
without any collateral. It is also beneficial because there is no documentation or formalities involved.
However, self-funding your business is essential for these businesses. When you opt for this method,
you will not have extensive loans & monthly payments weighing on your shoulders, especially when
your business is on a downward slope. Bootstrapping is a mode of quick funding for small businesses
and also start-ups.
Friends & Family Funding: It is also said that you should never mix personal life with business. But
there are times, in the hour of need, exceptions can be made. When you are 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 opt for this medium of business funding, you will have to
remember two key factors.
First, you must ensure that you share a healthy relationship or bond with them, so there is no bad
blood later. Secondly, always remember that your friends and family are investing in you and not
necessarily in your business. However, you need to reassure them and stay true to your word that you
will be returning the dividends when you acquire them. Also, you don’t need to 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 are establishments that will provide financial aids and are also covered
under the banking regulations of RBI. These are financial institutions that provide banking services,
such as small business loan funding without security. However, you can quickly fill in your
application and upload documents online hassle-free with their online application process.
NBFCs also let business owners avail business funding loans with essential eligibility criteria and
minimum documentation without collateral. NBFCs are also gaining popularity in the financial
market. They are safe, efficient, and a medium for quick funding for small businesses.
Crowdfunding: The term crowdfunding is gaining more and more popularity in the past few years. It
is a process of raising business funding from many individuals via social networking to finance a
business venture. This is also the ideal mode for quick funding for small businesses or start-ups,
especially those who don’t qualify for bank loans.
It is a means to raise money without giving away equity or bearing the burden of loans’ interest. 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. However, if your idea is appealing to the crowd, then they would
willingly fund your business idea in exchange for becoming a priority customer for your products or
services.
Angel Investors / Venture Capitalists (VCs): Let it be if you are a starting-up or an SME or 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 individuals who invest their own money in companies
that are at their early stages of growth in exchange for some equity ownership.
Whereas, when it comes to venture capitalists, they are business professionals who like to invest in
SME or MSMEs, where they see growth and good returns. Venture Capitalists usually put a 5-year
time frame on recovering their investment with good returns. However, they don’t provide business
funding to those companies that need coaching about growth.
Bank Loans: When it comes to a financial institution loan, it is the first option that hits any
entrepreneur’s mind while looking for business funding. It is also a traditional practice that involves
dealing with various local financial institutions, private or government. It is mainly the ones you’re
already associated with. However, applying for a financial institution loan can be a tedious job.
The process can easily take you anywhere from a few weeks to a few months. Not only that, you are
required to deposit some collateral and prove your creditworthiness to the financial institution as well.
Because of such strict rules and procedures along with higher interest rates, financial institution loans
have become less favourable by start-ups, SMEs, and MSMEs lately.
Government Grants: To foster the growth of your 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 also launched an initiative of Start-up India that aims to fund 10000cr. Rupees to
start-ups by 2020.
