Several costs crop up when you run a business. So you need some funds that you can draw from. If you are planning to set up or expand your business, there are various resources that you can tap into to raise that capital.
Here are the 10 best sources for you to get your startup funded:
1. Online Lending Companies
There are many investment portals online that bring together investors from various parts of the world. If you have a good pitch for your startup, you can get funding in as little as 24 hours for your new business. Each lender has different terms and conditions. Some of them require a good credit score to lend to small businesses, while others will find based on the merit of each application solely.
For certain types of businesses and ethnic or economic groups, many government organisations offer special grants to help them build capital for their business. You also have independent organisations that choose certain groups like female entrepreneurs to fund a startup. The only disadvantage with grants is that it is challenging to qualify for one as many business owners apply for these grants.
3. Self Funding
If you have the capital available with you, you can use it for your business. Often known as bootlegging, this is not the best option as you may need additional funds in the future to run your business and meet expenses. Another self-finance option is to get a loan from a bank based on your current income, credit score, and other parameters.
4. Close Network
It is one of the most common sources for many start-ups. If you have friends and family members who are willing to invest, you can draw up different terms of engagement to help them gain from your business.
You must put down all the terms and conditions with your lender and include details about the repayment schedule and the way ahead if your business fails to perform as expected. Alternatively, you can give them equity or partnership in your business. In this case, you will have to specify the roles and responsibilities and the terms for profit sharing when the business picks up.
5. P2P Loans
These are loans that you obtain from lenders who are not part of a lending institution or bank. They are usually individual lenders that you can contact directly. You can also look for online P2P or peer-to-peer platforms where your application will be matched with a suitable lender. These platforms are known for their quick approval rate and affordable interest rates.
One factor that most P2P platforms consider is your credit score. Some of them may even lend based on the application and the merit of your business proposal. The terms and conditions for repayment are also simple with these loans.
If you have an innovative business idea or have a social cause associated with it, crowdfunding is the best option for you. In simple terms, crowdfunding is a fundraiser where you appeal for cash online. It is one of the most sought-after funding options today because it is simple and you do not have to repay the donors. Moreover, there are no restrictions on how you can use the funds generated from a crowdfunding campaign.
However, you need to be aware that meeting financial targets with these crowdfunding appeals is not easy. You need to be quite organised and diligent in your approach. You also have to invest a lot of time and effort in marketing to make your business sound interesting to potential donors.
7. Micro Financing
Microfinancing refers to short-term business loans that you can get at highly affordable interest rates. Banks offer microloans and several government schemes to entrepreneurs. The advantage of these loans is that they are to help you raise capital with minimum risk.
There are individual microlenders that you can approach as well. However, they offer higher rates of interest and may even look at stakes in your company. They also do not offer a good loan quantum for your business.
8. Credit Cards
If you have a credit card with a good spending limit, it can fund daily expenses for your business. Most small business owners turn to credit cards, personal or business, to meet regular overheads associated with their business. You get 30 days to repay the spending on your credit card. If you can make these repayments on time, it also becomes a very reliable option to improve your credit score.
Of course, there are risks associated with it. If your business fails to meet the expected revenue, you will have to pay high charges for late repayment. It also affects your credit score, making it harder for you to obtain any form of financing in the future.
9. Angel Investment
Angel investment or venture capital is the best way to fund an ambitious business plan. If you have a great plan for revenue and scaling your business, venture capitalists can also give you the expert advice that you need to take your business forward. Venture capitalists look for startups that show a very high growth rate. They also tend to expect high equity in the business.
You will have to prepare a good exit strategy within 5 to 10 years as well. However, angel investors or venture capitalists are your best bet to get long-term funding and high capital for your business. They will also play the role of a mentor and stay involved in the business to help it grow.
10. Equipment Purchase Funding
This is the easiest type of funding as the approval rates are higher. If your business needs any equipment or machinery, you can use it as security or collateral to obtain a loan. The loan amount depends on the value of the equipment that you wish to purchase. A portion of the equipment is funded by the investor, and the rest is the margin payable by the borrower.
If you cannot fund your business on your own, you now have ten more sources that you can choose from. You need to ensure you have a good business deck or pitch that shows value in your business. You can get help from experts who specialise in preparing investor decks and proposals that are likely to get you funding easily.
1) How to Know if Your Business Idea is Going to Be the Next Game Changer?
2) Why Do Businesses Need a Good ERP System?
3) What Are Some Good Startup Ideas?
4) Startup Ideas: How do you know if your Startup idea already exists?
5) OkCredit: All you need to know about OkCredit & how it works.
Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.
Q. What is a credit score?
Ans. Based on the repayments made towards your existing loans and credit cards and overall financial health, a report is prepared by CIBIL or the credit bureau of India. Each borrower is scored based on his or her financial transactions and habits. A higher credit score means that you have good financial health and are also more prompt in making repayments towards your loans and credit cards. It increases your chances of getting loans and investments.
Q. How much credit score do I need to get investments?
Ans. Normally, a credit score of 650 is acceptable to get an investment for your business. It, of course, will change from one borrower to the other. Some may require a higher credit score.
Q. How much equipment finance can I get?
Ans. You can get equipment financing of up to 80% of the value of the equipment. It is subject to the discretion of the lender and can change from one institution to the other.
Q. Can I get unsecured business loans?
Ans. Some government schemes help you get unsecured loans. These loans are insured which means that you have to pay a premium each year. In case you are unable to pay the loan, the bank claims insurance.
Q. What if my crowdfunding campaign fails to reach the financial target?
Ans. If the crowdfunding campaign set up for your business does not reach the complete target, then all the money raised so far will be sent back to the donors. You either receive full funding or none at all.