According to a survey conducted recently, 90% of Indian start-ups shut down within the first five years after launching. And, 65% of the respondents of this survey felt that lack of funding remains one of the major reasons behind this, apart from the insufficient labor force.
No matter how innovative strategies start-up owners use, without proper financial backup, it is hardly possible to grow the business.
Thanks to different funding options getting introduced these days, individuals can easily meet their working capital requirements. Several short-term business loans are also available for small business owners to cover their operational costs.
However, borrowers should understand how all these fund-raising methods work to pick the right one for their start-up venture.
Popular funding options to finance your business
It is extremely important to find the right funding model, failing which it gets difficult to meet the repayment terms after a point. Since financial requirements mainly depend on the nature of the business, calculate how much exactly you need before applying for startup business loans.
Once you are aware of your working capital needs, choose your preferred financing option from the list mentioned below:
Bootstrapping your start-up venture
Bootstrapping, also known as self-funding, is the process of arranging funds on your own and investing in your business. The concept might seem tricky, especially when you are just starting out.
However, it gives you first-hand experience of everything, from assessing how much capital your business needs to imbibing financial habits to make more profit, etc.
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You can either rely on your own savings to invest in your business ideas or ask your family or close ones to contribute. Either way, it remains the most effective solution since you do not have a fixed financial burden. However, this particular process is only ideal if your initial requirement is small.
Individuals wanting to invest in start-up projects or early-stage companies in exchange for a specific percentage of equity or convertible debt are called angel investors. You will find different industry-specific networking events where these investors look forward to connecting with budding entrepreneurs with an innovative business plan.
Even though their sole purpose is to earn interest out of your business’s success, you can also expect mentoring and business advice during the initial stage.
Furthermore, you can get contacts to strategic partners and potential customers and knowledge regarding the current marketplace and strategies other companies are following.
Crowdfunding is considered a great alternative for business loans and one of the modern ways to finance a business venture. The process mainly involves setting up campaigns on popular crowdfunding websites, describing your future goals for your business, and persuading financiers to invest certain amounts.
Entrepreneurs are also choosing reward-based crowdfunding campaigns that do not require giving away part-ownership or equity, rather some of the products or services in exchange for the funds. Thus, crowdfunding has become one of the effective ways to ensure their business never runs out of working capital.
Nowadays, small business owners are turning towards venture capitalists mainly because of the easy access to potential customers, skilled employees, etc., apart from substantial funds. However, the process is not that easy like other funding options since VCs look for start-up projects that have high growth potential and have already shown some traction.
There are specific criteria your business has to meet, like the stage of your company, the industry it belongs to, location, etc., in order to be eligible for such funding. Therefore, try to meet the required parameters before approaching any venture capitalist or choose an alternative startup business loan to gather funds.
Small business loans
With popular government-backed schemes coming forward, obtaining high-value business loans has become comparatively easier. However, it is advisable to look for small business loans initially as they come with flexible repayment tenor and reasonable interest rates.
There are certain collateral-free loan schemes available that do not require pledging any security or assets and provide an attractive rate of interest along with other benefits.
Note that availing of business loans can be a tedious task because of the lengthy documentation process it comes with. Make sure to keep all the supportive documents handy to expedite the process and negotiate with the lender regarding interest rates.
Another effective way to save yourself from hefty monthly installments is to go for pre-approved offers, provided by reputed financial institutions and NBFCs like Bajaj Finserv.
These offers are available on different financial products like business loans, personal loans, credit cards, etc. To get better deals on your loan, check your pre-approved offer by submitting your name and contact details.
Now that you have so many funding options to choose from try to follow the eligibility guidelines before approaching any angel investor or a lender for business loans. Also, have a solid business model prepared with you for prompt approval.