Startup Financing: 10 Key Funding Options For Your Company
Fund your business
Starting a business is not cheap. One of the first — and most crucial — financial decisions most business owners make is how to finance their company. The way you fund your company may have an impact on how it is structured and run
1. Fund your business yourself with self-funding
Self-funding, often known as bootstrapping, allows you to use your own financial resources to sustain your company. Self-funding can take the form of borrowing money from relatives and friends, using your savings account, or even tapping into your 401(k) plan (k).
You keep entire control over your business when you self-fund, but you also take on all of the risk. Be cautious not to spend more than you can afford, especially if you opt to withdraw funds from your retirement accounts early. You could incur costly costs or penalties, as well as jeopardise your ability to retire on time, so consult your plan administrator and a personal financial advisor first.
2. Venture capital
The first thing to remember is that venture capital is not for everyone. Venture capitalists are looking for technology-driven enterprises and companies with high-growth potential in fields including information technology, communications, and biotechnology.
Venture capitalists invest in a company's stock to assist it carry out a promising but high-risk initiative. This entails handing over some ownership or equity in your company to a third party. Venture capitalists also demand a fair return on their investment, which is usually realised when the company begins selling stock to the general public. Make careful to seek for investors with suitable experience and knowledge for your company.
3. Loans under Government Schemes
The Indian government has introduced a number of loan schemes aimed at assisting start-up businesses, SMEs, and MSMEs, as well as promoting rural India's socioeconomic growth, women entrepreneurs, educated youth, individuals from the SC/ST category, Small Scale Industries (SSIs), villages, and people living in rural and urban areas. The MUDRA loan scheme 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), and other loan schemes launched by the Indian government to assist start-up enterprises include the MUDRA loan scheme under the Pradhan Mantri Mudra Yojana (PMMY), Stand-up India, etc.
4. Loans from Banks
For start-up businesses, banks are the preferred method of obtaining funds because they are more dependable and convenient. Term loans and working capital loans are two types of loans that banks offer to new businesses. Almost every Indian bank, both public and private, gives business loans to start-ups. The interest rate, loan amount, and repayment period offered by each bank, however, will differ.
5. Get Angel Investment In Your Startup
Individuals with extra funds and a strong desire to invest in new businesses are known as angel investors. They also collaborate in networks to review proposals collectively before investing. Along with funding, they can provide mentoring and advise.
Many well-known companies, such as Google, Yahoo, and Alibaba, have benefited from angel investments. This type of investing is most common in a company's early phases of development, with investors expecting up to 30% equity. For bigger profits, they prefer to take more risks in their investments.
Angel investment has its own drawbacks. Compared to venture capitalists, angel investors put in less money (covered in next point).
6. Get Funding From Business Incubators & Accelerators
Incubator and accelerator programmes are viable funding options for early-stage firms. Every year, hundreds of new firms are helped by these initiatives, which can be found in practically every large city.
Although the two names are sometimes used interchangeably, there are a few key distinctions. Incubators are similar to a parent to a child, nurturing a business by offering a safe haven, tools, training, and a network. An incubator aids/assists/nurtures a business to walk, whereas an accelerator helps a business to run/take a great jump.
These programmes typically last 4 to 8 months and demand time commitment on the part of the business owners. With the help of this platform, you'll be able to connect with mentors, investors, and other startups.
7. Peer-to-Peer Lending
Peer-to-peer lending is a form of money lending in which there are no middlemen. Lenders put their money in borrowers, and borrowers have money to invest in their startup. Because the interest rate offered is higher than banks, NBFCS, and MFIs, lenders can profit from borrowers in this procedure. For the benefit of both lenders and borrowers, the RBI regulates peer-to-peer lending institutions. Peer-to-peer lending is a sort of loan for start-up businesses, but it is an investment for the lender.
So there you have it, some of the most common financial methods for funding your startup company. At least one of the aforementioned methods will undoubtedly assist you in obtaining capital for your new business. Prepare for all aspects of the bootstrapping process before launching your business.
8. Get Business Loans From Microfinance Providers or NBFCs
When you're unable to obtain a bank loan, what do you do? There's still time to change your mind. Microfinance is the provision of financial services to people who would otherwise be unable to obtain them through traditional banking. It's growing increasingly popular among folks with restricted financial needs and poor credit ratings.
Similarly, Non Banking Financial Corporations (NBFCs) are businesses that offer banking services but do not fulfil the legal definition of a bank.
More information is available from the MicroFinance Institute Network. The following is a list of India's best microfinance firms.
To assist you in getting funded, ProfitBooks has worked with some of India's best lenders.
9. Credit Cards
Credit cards are sometimes the most convenient way to obtain funds, but they come with a significant capital cost due to high credit card interest rates. Small-business expert Rachel Alexander says, "The good news is that they're flexible." "You're not required to defend why you're spending the money."
Your credit limit determines how much you can borrow, which is often less than what you'd get from a bank or other sort of loan. Credit cards are a suitable source of finance for small-scale revolving demands, as well as for entrepreneurs who want to keep control of their business.
10. Loan from Friends and Family
Friends or family members may be willing to lend money. If they lose money on the investment, this strategy could backfire. If the business thrives, though, a greater tie may grow.
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