How To Get Funding To Start A Business In India?

The first year of operation for a new business is critical. If reports are believed, almost 94% of new businesses fail to generate a suitable result during the first year. The primary reason for an organisation to fail during its Inception is lack of funding. Money is the bloodline of any business. It takes a lot to convert an idea into a fully incorporated organisation - the painstaking journey of creating a business model goes in vain if there is a lack of startup funding. It is common for entrepreneurs to linger around the question – “how to finance the startup?”

Funding - How and When?

Business funding is accumulated based on various criteria, namely, the nature and type of business. The best way you can realise proper funding is by communicating the core of the idea and its prospects to the investors.

Besides the brilliant idea of your business, you need to gather a handful of people who believe what the idea can generate. Pooling money from your savings account and working on the product, is profitable, but will not be the case in the long run. Once you start a business, it begins to gain traction with an increasing customer base. Surprisingly entrepreneurs do not realise the chunk of market startups generate through simple modes and tactics. For a startup to generate funding through an initial public offering is a romantic imagination. However, the reality is unpredictable, full of surprises, and beats scariness to the core.

How To Get Funding To Start A Business In India?

Read through the best ways your startup can generate funding from the list below.

Starting a business has its own set of opportunities. All of it comes along with several risks and obstacles. Small businesses, especially, are concerned about capital, but operations may not run as smoothly as expected.

1. Angel Investment

Angel investments are a type of business loan, typically offered by angel investors who are regarded as the influencers looking to fund a business. Angel investment has related consequences. For example, an angel investor will scrutinise the business’s creativity and strategy to check for potential future profits.

Ensure to have all of your business equipment at hand together with a healthy business plan. Investors today have come together in several investor groups to make their approach resourceful and increase the prospect of angel investment. It is not difficult to look for a good angel investor; however, read all the documents’ terms and conditions carefully.

2. Bootstrap Your Business

Bootstrapping, primarily known as self-funding, is considered one of the most acceptable ways to fund your business during its initial phase. Although you may face trouble collecting the necessary funding without much traction, once you bootstrap your business and develop a potential customer base, you can showcase the portfolio to investors for more capital funding.

If you have savings or can get your relatives to contribute, what better than not getting under an investment or business loan. There will also be fewer chances of formalities and compliances given the low-cost of gathering the fund. Even if you are relatively charged a considerable interest rate, consider the option and move ahead.

3. Working Capital Loan

Small businesses can avail themselves of the option of a working capital loan to meet an immediate requirement, short-term needs, and liquid cash in case a company falls into the absence of cash required for operations to run smoothly. In such cases, working capital loans are incredibly resourceful.

The interest rates for the working capital loan ranges anywhere between 10% to 15%. In some cases, it may increase up to 16 % but not more than that. Make sure you have a good credit history for the financer to extend the loan. If you have run into a credit risk or you have a low credit history, you can introduce a guarantor into the plan and go for a working capital loan.

4. Venture Capitalist

This is a place for a business owner to make the big bets. Venture capitals are professionals who act as potential investors for companies with good prospects. The investment mode for a venture capitalist is different from other investors, given that venture capitalists invest in a business against equity.

If the same business is listed for an initial public offer or an acquisition, venture capitalists step backwards and leave the organisation. Venture capitalists are a great way to take suggestions, strategy, and creativity for a brand, as they have expertise and mentorship with proven business experiences.

Scientifically the business seeks to have its litmus test by introducing venture capitalists. Venture capitalists examine the business potential by evaluating points of scalability and sustainability.

5. Business Incubators

Businesses in the early stage can consider accelerator and incubator programs for funding—almost all major significant cities worldwide conduct incubator programs to assist startups. Although in the literal sense, incubators and accelerator programs are different but used simultaneously to mean the same thing.

Incubators act like the parent to the child who provides information, a fund to the business, and the tools and training needed to run the operations smoothly. Accelerator programs perform a similar task. However, they come into the picture when the company is already in the growth phase, and the owners would like to accelerate and increase the output.

Incubator programs usually run for 4 to 8 months during which business owners have to leave their commitments. The best part of attending the accelerator and incubator program is diverse connections with market experts such as business mentors, business investors, and owners of reputed startups.

6. Term Loan

Businesses often require long-term loans, and one way they can obtain it is by term loan. When you pitch the idea of your business to an investor, the investor may likely be financing through a credit to meet the initial capital expenditures. If you are lucky, you get the entire amount in full.

Small business financing has a fixed duration. Term loans for small businesses are available at a lower interest rate depending upon the business owner’s credit profile or the guarantor. Term loans are not unsecured loans.

As a business owner seeking a term loan, make sure you have enough collateral to borrow the money. You can also obtain illegal term loans often termed unsecured loans, but the risk is high, and so are the consequences of not paying them back within the time. Usually, term loans are between 15 to 20 years with a fixed rate of interest which does not change with inflation.

7. Cloud Funding

Cloud funding typically involves an investor who allows you to showcase the originality and strategy of the business. The investor decides whether to fund or the extent of funding. On the contrary, crowdfunding involves a group of small business financing individuals.

Crowdfunding is also an excellent way to pull investment either against debt or equity. Several crowdfunding websites on the internet offer rewards in exchange for Investments. Crowdfunding is considered an opportunity where the business will reach out to a pool of investors and financial guidance.

Choose The Right Funding

The key to choosing the right kind of funding entirely depends upon the assets and equity at hand, besides the idea to showcase your business potential. Several government programs are tending to offer capital to startups often introduced during the union budget. However, all of the funding options come with their consequences. Before you ask for loans and investments from investors, make sure your business plan has much credibility to offer the payment in totality. In some cases, if your business fails to repay the amount borrowed, you may either have to liquidate the company or handover the ownership to the investor.

Also Read:

1) Types of Series Funding
2) How To Raise Funds For Your Business?
3) What Is Seed Funding And How Does It Work?
4) How are the mutual funds taxed in India?