Small and medium scale business is currently booming in India. The growth of 12% in GDP over 2019-20 is greatly credited to the rise in business ventures across the country.
Government initiatives to promote SMEs and MSMEs with numerous types of loan schemes and concessions have further aided the cause. These loan schemes options have played an important role in the success of small businesses, who are struggling to get fundings in a short span of time.
Consequently, it is also important for potential entrepreneurs to understand the different funding options which can be explored to launch one’s own business.
Business loans offered by numerous financial institutions are the single most effective funding option. These generally have a varied list of benefits that encompass all the financial necessities faced by emerging enterprisers.
Entrepreneurs who are looking to start a new business, even they can get a startup business loan facility as well, offered by various NBFCs across the country. It is important to understand for every business owner that promotion and advertisement are a very important part of the business and if one needs funding for it then there are solutions available.
Furthermore, business loans offered by different financial institutions and NBFCs do not exercise any control over the business setup and its functioning. Interestingly, while most of the other funding options do not take the sovereignty of an enterprise on themselves, there are scenarios when management and ownership can transfer over.
It is important to understand how these funding options work before deciding on either of them.
Self-funding or bootstrapping, though extremely difficult, can be one of the best ways to fund a business venture. This requires planning from long ahead and building the finances accordingly so that an entrepreneur stays ready with adequate financial assets. In case there is a situation where the finance is not enough, an additional small business loan usually provides the necessary monetary support.
Angel investors can be found as single individuals or as a network, interested in investing in budding businesses. Along with financial aid, angel investors also provide mentoring services. However, unlike in the case of business loans, this can sometimes overlap into control over functional aspects too.
Numerous government initiatives have been launched which aid small and medium business ventures with financial capital for their business. Initiatives like MUDRA have been directly launched by the Government of India while multiple other initiatives have also been launched by different states.
Of the numerous creative ways of raising funds for small businesses, crowdfunding can be considered as one of the most effective solutions. In simple terms, it is like taking multiple loans from single entities who invest in the business venture. This method also markets the product amongst different potential customers.
These are professional controlled funds that invest in different companies as long as they find the venture lucrative and promising. The main difficulty entrepreneurs can face with venture capitalists is that these have shorter repayment tenors, unlike business loans.
Business incubators and accelerators
Both these assistances are generally available in major cities and metropolitan areas. While very similar to each other, incubators primarily aid in growing the foundations of business while accelerators generally aid in simply increasing its outward growth.
While these funding options might seem lucrative under relevant circumstances, these are often not as systematically arranged as business loans. In the case of business loans, all procedures from application to approval and disbursal are pre-determined.
Consequently, they do not just save a borrower’s time, but also allows the individual to estimate the time to acquire the necessary financial aid.
NBFCs like even bring you pre-approved offers that make availing business loans quick and easy.
Consequently, budding entrepreneurs should carefully select their financial options. In case they fulfil the business loan eligibility criteria and decide on it, all details of the loan product must be checked in details before applying for the advance.
Along with the application for a loan product, borrowers should also understand the best method to use such a loan. While it can be used on one hand to launch a new business, entrepreneurs should also know how to use their business loans for expanding their business.