The money raised to establish and run a firm is referred to as startup funding. It is a monetary investment in a business for the purposes of product creation, production, expansion, sales & marketing, office space, and inventory. Many firms prefer not to seek outside investment and instead rely solely on their founders (to prevent debts and equity dilution). Most companies, however, do raise money, especially as they expand and scale their operations. This blog will serve as your virtual startup finance guide.
The startup needs to know the reason why there is a requirement for funding and also the amount that needs to be raised. The startup should develop a milestone-based plan with clear timelines regarding what the startup wishes to do in the coming years. Startup funding can help you start and develop your business easily. Following are some of the ways that can help you in your startup funding.
Fund your startup yourself
Self-funding or personal investment is the most common method of financing for new businesses. Even if you apply for a loan or contact a venture capitalist or any government institution for startup funding, they will ask you how much money you intend to put into your business. For new entrepreneurs, investing their own money is the wisest option. In the later phases of your firm, you may simply apply for business loans, and lenders will have no reason to turn you down since they will regard the stability of your company as a low-risk factor.
Identifying Angel Investors
Angel investors are individuals who have a surplus of capital and are interested in startup funding in India and throughout the world. Angel investors’ investments carry a larger risk than loans supplied by financial institutions since Angel investors intend to invest for better profit returns. Entrepreneurs can directly contact these investors for cash assistance or startup funding.
Keep an eye out for crowd-sourcing
Crowd-funding is a method of startup funding (collecting cash from a large number of people) using social media sites and web-based platforms, primarily for business reasons. Crowd-funding websites generate money for a variety of causes, including social causes, charity, ideas, disaster assistance, and events. This notion or idea aids in the raising of finances for new businesses or first-time entrepreneurs, or startup funding, as well as the promotion of social and cultural reasons. Kickstarter, Ketto, Catapooolt, FuelADream, Fundable, Indiegogo, Milaap, and Wishberry, are popular crowd-funding sites in India that can also be used for startup funding.
Apply for Government-sponsored loans
The Indian government has launched a number of loan schemes to help start-up businesses, startup funding, SMEs, and MSMEs, as well as promote rural India’s socio-economic growth, women entrepreneurs, educated youth, SC/ST individuals, 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 businesses.
Obtain loans from both private and public banks
For start-up businesses, banks are the preferred method of obtaining startup funding, since they are more dependable and easy. Banks offer two types of loans to new businesses: term loans and working capital loans. Almost every public and private bank in India provides business loans to new businesses. Different banks offer different interest rates, payback periods, and loan amounts.
Look into NBFCs or MFIs for small business loans
It will be difficult to obtain loans from private or public sector banks if you are new to lending and do not have a financial history or credit score. You may receive business loans for your startup funding by contacting Non-Banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs) without having a credit score or financial history. In comparison to PSU banks, the interest rates given by NBFCS and MFIs are significantly higher for startup funding.
Make use of business credit cards
Since the growth of start-up businesses in recent years, the use of credit cards for commercial reasons has increased. If your business does not require huge sums of money in the early stages, you may utilize credit cards for purchases and clear the balance on time to prevent debt or extra interest rates paid in the form of penalties. It can serve as microfinance for startup funding.
Peer-to-Peer Lending (P2P)
Peer-to-peer lending is a sort of money lending in which no third parties are engaged in the transaction. Lenders give money to borrowers as an investment, and borrowers get funds to invest in their businesses. Lenders can profit from borrowers in this procedure since the interest rate given is greater than that of banks, NBFCS, and MFIs. Peer-to-Peer lending institutions are regulated by the Apex bank (RBI) for the benefit of both lenders and borrowers. It is a sort of financing for start-up businesses in getting startup funding, but it is an investment for lenders.
The startups’ registration process was made flexible and easy in 2016 by the Government by coming up with DIPP registration (Department of Industrial Policy and Promotion).
Startup funding, sales and marketing, and other concerns must all be understood and dealt with when starting a firm. So there you have it, some of the most common financial methods for funding your startup firm. At least one of the approaches outlined will be quite beneficial in obtaining capital for your startup company. Apart from the above suggestions, consulting a professional lawyer will help you in protecting your business from legal issues and help you to seek startup funding.