Gaurav is a sales manager in a cosmetic company. With 5 years of experience in sales and 2 years in manufacturing, he thinks it’s time to start something of his own. He realises that he would need to invest around one crore to get his company started. He has half the amount, but has to arrange for the remaining sum, and is on the look out for various finance options available to business owners.
Here, we present five sources to help you finance your business:
Most banks provide Business Loans, both with and without collateral, to kick-start your venture. However, you need to have concrete plans in place before you approach banks since they will reject vague ideas. Also, Business Loans are a good idea when you need a substantial amount of capital. If you don’t need a huge investment to get started, you can consider taking a Personal Loan. A Personal Loan is quite hassle-free as it requires minimum documentation and is usually disbursed quickly. Various kinds of business loans with various cost structures are also available. For instance, SBI has a separate branch in Bengaluru which caters to start-ups.
If you have an asset, like property, you can also take a loan against it. This is called Loan against Property or LAP. If you have an existing Home Loan, you could check with your bank if they can offer you a Top-up Loan based on your relationship with the bank as well as your loan repayment schedule.
Do you have Fixed Deposits but don’t want to break them just yet? You can borrow against your FDs at an interest rate that is just 1% higher than the interest rate you are receiving on it.
If you have a good credit score and a decent repayment history, you can even negotiate with the banks to give you a lesser rate of interest.
Additional Reading: Loan Against Property VS Personal Loan
You must have heard of venture capitalists or angel investors who provide financial backing for start-ups or new entrepreneurs. They usually provide capital in lieu of equity ownership of your business. This is one of the most convenient and popular ways of financing your business, as long as you’re open to sharing control.
Specialized Banks and Institutions
Specialized banks and institutions such as SIDBI, Import-Export Bank of India, Bharatiya Mahila Bank, NABARD as well as many other government, semi-government and private institutions also provide financial support for starting and running a business. These institutions also provide assistance in legal, taxation, registration, research and planning.
The advent of technology provides you with an innovative way to raise money for your start-up – Crowdfunding. Crowdfunding is quite the rage these days and involves raising funds through the internet.
There are various online crowdfunding forums where you can pitch your business idea and raise funds from a group of people in exchange for various rewards. However, sharing your idea on a public platform has its pros and cons. The good thing is that you might get some valuable feedback to develop your idea even further, but on the other hand your idea might be duplicated by others.
Additional Reading: Start-up India 2016: A new world order in the making
Family and Friends
Your family and friends are there for you when no one else is, but money is a tricky temptress, capable of changing even the best relationships. So if you find yourself with no option apart from borrowing money from your close ones, clearly specify the borrowing terms – the capital you’re borrowing, the tenure, and the rate of interest, if any. Think of it like any other loan you will have to repay.
Developing an idea close to your heart and raising the capital for it in this volatile economy is no easy task. While there are plenty of options available, you need to prudently choose the one that will work best for your business idea.