How to finance your business?
Are you planning to start a business? Congratulations, you are among the few who dare to do what you want and be your boss. If you have a great idea, the will to stick to your plan and the ability to find the right people for the right job, you are already on your way to creating your own company.
Whatever your idea might be for starting a business, you need capital investment. As you know that fiance is the life-blood of any organisation, you need to pool funds necessary to establish your company, bring in raw materials, employ a workforce and expand the business operations. Regardless of the size of your establishment, whether it is MSME or MNC, you need to review all the sources of funds required to invest in your company.
Today, we are going to take a look at a few strategies or sources that can help you to finance your business enterprise:
Loans and business credit cards from Banks
For start-up businesses, banks are viewed as the top priority since they are a more stable and practical source of capital. Term loans and working capital loans are the two ways banks offer financing to new businesses. Business loans for start-ups are provided by almost all banks in the world, both public and private. The interest rate, loan size, and payback period are given; however, they will differ from bank to bank.
Since start-up businesses have become more prevalent in recent years, the use of credit cards for business purposes has increased. Using credit cards for transactions and promptly returning the balance may help you avoid debt and different interest rates paid in the form of penalties if your start-up does not initially require vast amounts of cash.
Now you might be wondering why should you continue reading any further if our advice to you is to use your money to start your business. It is a pretty obvious strategy and a risky one too. But hear us out; there are a lot of benefits in investing your savings into your enterprise.
- If you are new to the business, investing your savings is an excellent idea as you can find creative ways to make the most out of those funds.
- This will also help you bring in cash fast for day-to-day operations.
- You are not accountable to anyone.
- The risks are comparatively lower than banks and other lenders, and you don't have to worry about your credit score.
Angel Investors are individuals or financial institutions with a considerable amount of surplus funds willing to invest in businesses, mainly start-ups that show great potential. What we mean by 'great potential' is that these investors are looking for high investment returns; hence, they have a higher risk than banks and other financial institutions. However, the overall procedure for acquiring funds is swifter, and you can obtain a high amount of funds. So if you believe your business enterprise can be a success and you can give a convincing presentation, angel investors are a good source for you.
Friends and family
Your relatives and friends are another source of funds you should consider, especially if you are new to starting a business venture. The rate of interest that you have to pay is considerably lower, and the funds are of low risk. These funds can reduce your debt, and you can obtain ready cash quickly. But be careful as these can strain your relationships if you don't return the favour when they want.
Peer-to-peer lending (P2P)
Peer-to-peer lending is a type of borrowing where you can obtain funds directly from a money lender without the involvement of any financial institute as an intermediary. There are a lot of websites in India that facilitate peer-to-peer lending. The rate of interest is higher compared to banks and other monetary funds. RBI regulates peer-to-peer lending for the benefit of lenders and borrowers.
Host a crowd-funding campaign
Hosting a crowd-funding campaign might be helpful if you need to raise your cash flow or your working capital. Through these campaigns, many people contribute small sums of money, often held online on popular websites. A few things you need to keep in my mind while hosting a crowd-funding campaign is that you should target those people who are interested in your ideas. These people would be more like to pool their resources if they see potential in your products and services. Please choose the right platform to host your campaign and promote it extensively on social media.
Research about government grants/schemes and subsidies
The Indian government has introduced several business-loan schemes and programmes to help new businesses, SMEs, MSMEs, and women-run enterprises. The MUDRA loan programme under the Pradhan Mantri Mudra Yojana (PMMY), Start-up India, Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Stand-up India, Atal Innovation Mission, Make in India, Trade-related Entrepreneurship Assistance and Development (TREAD), etc. are just a few of the loan programmes launched by the Indian government to aid new businesses.
Working together is occasionally the ideal way to develop a business model for your firm. Start-ups can get resources and assistance from start-up incubators. While there, you'll have access to knowledge, guidance, and the resources you need to be successful, such as technology, utilities, legal assistance, and financial support. Interviewing other start-up founders is a fantastic idea as you investigate and evaluate potential start-up incubators, and they can help you determine if you'll fit in or not.
Private investors, also known as venture capitalists, provide funding for start-ups and other small enterprises. These lenders often contribute to a single venture capital fund and participate in limited partnerships (LPs). The funds will thereafter be managed and invested by a commission.
If the organisation chooses to support a start-up, it will provide money for an ownership share in the business. These committee members often seek start-ups that have developed their products beyond the concept stage and are prepared to market them.
Choosing the right source of funds is a critical decision in the life of a business enterprise. If you are relatively new to the business world, it is advisable to seek a more reliable and less risky source of funds to build trust between you and the financial institutions. Always consider alternative sources of funds rather than sticking to want and ensure you have enough resources to carry out day-to-day business activities.