According to a recent study, over 94% of new businesses fail during first year of operation. Lack of funding turn to be one of the common reasons. Money is the bloodline of any business. The long painstaking yet exciting journey from the idea to revenue generating business needs a fuel named capital. That’s why, at almost every stage of the business, entrepreneurs find themselves asking – How do I finance my startup?
Now, when would you require funding depends largely on the nature and type of the business. But once you have realized the need for fund raising, below are some of the different sources of finance available.
- Bootstrapping your startup business:
- Self-funding, also known as bootstrapping, is an effective way of startup financing, especially when you are just starting your business. First-time entrepreneurs often have trouble getting funding without first showing some traction and a plan for potential success.
- You can invest from your own savings or can get your family and friends to contribute. This will be easy to raise due to less formalities/compliances, plus less costs of raising. In most situations, family and friends are flexible with the interest rate.
- Get Angel Investment In Your Startup:
- Angel investors are individuals with surplus cash and a keen interest to invest in upcoming startups. They also work in groups of networks to collectively screen the proposals before investing. They can also offer mentoring or advice alongside capital.
- A list of popular Angel Investors in India – Indian Angel Network, Mumbai Angels, Hyderabad Angels.
- Get Funding From Business Incubators & Accelerators:
- Early stage businesses can consider Incubator and Accelerator programs as a funding option. Found in almost every major city, these programs assist hundreds of startup businesses every year.
- Though used interchangeably, there are few fundamental differences between the two terms. Incubators are like a parent to to a child, who nurture the business providing shelter tools and training and network to a business. Accelerators so more or less the same thing, but an incubator helps/assists/nurtures a business to walk, while accelerator helps to run/take a giant leap.
- These programs normally run for 4-8 months and require time commitment from the business owners. You will also be able to make good connections with mentors, investors and other fellow startups using this platform.
- In India, popular names are Amity Innovation Incubator, AngelPrime, CIIE, IAN Business Incubator, Villgro, Startup Village and TLabs.
- Funding from bank would involve the usual process of sharing the business plan and the valuation details, along with the project report, based on which the loan is sanctioned.
- Almost every bank in India offers SME finance through various programs. For instance, leading Indian banks – Bank Of Baroda, HDFC, ICICI and Axis banks have more than 7-8 different options to offer collateral free business loans.
- Government backed ‘Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA)‘ starts with an initial corpus of Rs. 20,000 crore to extend benefits to around 10 lakhs SMEs. You are supposed to submit your business plan and once approved, the loan gets sanctioned. You get a MUDRA Card, which is like a credit card, which you can use to purchase raw materials, other expenses etc. Shishu, Kishor and Tarun are three categories of loans available under the promising scheme.