Many people start their journey of entrepreneurship, pinning their hopes and dreams on making their business a success. But statistics say that more than 94% of new businesses fail in the first year itself. The major cause is the lack of funds. For any business to be successful, it needs capital at every stage. If you’re excited to begin your entrepreneurial journey and wonder how to finance the startup, below are six ways to raise capital for your business.
Bootstrapping, also known as self-funding, is the best way to finance your startup. If you are a first-time entrepreneur, getting finance from external sources can be challenging because you don’t have a history of business experience and success.
You can bootstrap from your own savings or ask from family and friends. Getting money from friends and family is easy due to less or no formalities and low or no interest on the borrowed money.
Angel investors are people with surplus cash. They are interested in investing this cash in new startups and are willing to take risks for earning higher returns (up to 30% equity). This type of funding generally happens in the early stages of the business and is of a lesser amount.
Banks are the first place most people go to borrow money. However, when it comes to business funding, banks have stringent eligibility criteria that are not easy to meet for first-time entrepreneurs. However, if you are able to meet the eligibility criteria, business loans from banks are a great alternative to raise capital for your business. However, the loan amount, the interest rate, and repayment tenure offered vary from bank to bank.
If you are new to borrowing, you might not get a loan from private or public sector banks because you have no business credit score or business financial history. However, many Non-banking Financial Companies (NBFCs) and Micro Finance Institutions (MFIs) offer personal loans for businessmen without a credit score or financial history.
Crowdfunding is a newer way to collect funds to start your business. You can put up a detailed description of your business on crowdfunding platforms. The consumers read about the business and give money if they are convinced with the business idea. In exchange, they might preorder the product or even give you a donation.
The government of India has various loans schemes for Start-up enterprises, SMEs, and MSMEs to promote economic growth. Some of the Government of India-initiated loan schemes include the MUDRA loan scheme under Pradhan Mantri Mudra Yojana (PMMY), Trade-related Entrepreneurship Assistance and Development (TREAD), Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), Atal Innovation Mission, Start-up India, Stand-up India, Make in India, etc.
If you want to take your business off the ground, you have a plethora of borrowing options to raise capital. However, make sure that you always interchange your funding sources. This will give you flexibility and avoid over-dependence on one funding source.
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Business Talk is a digital business magazine that caters to CEOs, Entrepreneurs, VC, and Corporates. While working with entrepreneurs and business executives, we focus not only on their achievements. Our mission is to shed light on business entities, including their innovations, technological benchmarks, USPs, and milestones/accolades.
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