It is the best of times for entrepreneurs with government and business eco-system becoming increasingly enterprise friendly and supportive with startup business loans.
Startups are the new buzzword in this environment with a new generation of entrepreneurs, armed with business/tech degrees blazing their own path to success. But even if you do not have the right degree, it need not hold you back, all you need is the drive and push to achieve your goals.
Startups begin with an idea and, in an expanding economy like India, an acknowledged leader in many high growth sectors including IT, finance, biotech, and others, good ideas for startups are not hard to come by.
The first step on the way to realize your start-up dream is to raise the capital required, which is often the first hurdle you will need to successfully negotiate. But the good news is that there are several ways to raise the required startup loan amount, some have been around for ages, others are of more recent origin, but as always, there are upsides and downsides to each of them. So, you will have to carefully weigh each of the options. This will call for a detailed due diligence, which is where your business acumen will work as your best guide.
Here are some of the options you need to consider to successfully launch your venture:
Leverage your own resources
This is one of the oldest ways of starting a business and there is no reason why your start plans will not fly with this time-tested approach. You will, however, need to ensure that your personal finances will not take a big hit if things do not work out as planned. You will need to carry out a realistic assessment of the amount of money you can raise out of your own resources. The big plus in taking the self-financing route is that you need not bother about documentation for a startup business loan and can start off quickly. It will work great for you if you are starting small. The downside to this approach is you can only put in so much of money without affecting the interest of your family. Your venture may suffer due a lack of funds.
The family and friend’s approach
Your extended family and your friends might be able to help you in raising the required funds for your startup. In the traditional Indian set up, the extended family is a pillar of strength for entrepreneurs. Family bonds play an important role in running and nurturing businesses, in India. Furthermore, business communities have built systems for supporting community members in their business ventures. Your success will depend upon how closely you bond with the people will help you. You will always need to inform and consult with them to retain their trust and confidence.
The upside here is, like the self-financing approach, you will save time, money, and resources over documentation and start off quickly. The flip side is, you will run the risk of losing your friends and might end up with soured relationships with your extended family if things do not work out.
Banks are in the business of extending loans to businesses. Their very existence depends on businesses, they should, therefore, be your go-to partners for finance. Banks have been the mainstay of business lending for decades. In recent times, the conservative approach to lending by banks has given way to liberal lending policies for small, medium businesses, and startups. Thanks to economic reforms! The upside with this approach is, you can access a much higher amount of funds as you would be able to raise funds on your own or through friends, family, etc. Also, once you have established credibility with the bank your future requirements are almost guaranteed. You will, however, need to submit a lot of documentation, legal papers, etc., and make periodic disclosures of the financial health of your startup, which may not be such a bad thing.
Summing the following traditional business lending solutions may be available for your startup
|Personal resources||Easy||Limited amount||No documentation||High financial risk for family|
|Family, extended family, community||Not difficult||Higher amounts||No documentation, paperwork etc.||Negative effect on relationships|
|Banks||Completion of formalities for access||Much higher
|Share financial data with bank||Documentation, paperwork, formalities|
These traditional sources of business funding have worked well for businesses over the years. However, in the modern business environment there are several other ways to access startup loans for your business. Some of the popular ones in recent years are:
- Angel Investors
- Venture Capital
- Loans from Microfinance Providers
- Loans from NBFC
- Government Programs
Angel investment has become one of the preferred ways to raise capital for startups in recent years. Angel investors have substantial amounts of funds on their hands which they seek to invest in startups with the potential to deliver returns over time. Angel investors also form groups to assess business plans to invest in startups that have prospects for growth. You will need to pitch your business idea well for them to consider investing. Angel investors are individuals who are experienced and savvy about the emerging markets, technologies, trends, etc. assess business potential with a high level of accuracy.
- With their expertise in the field they can also offer mentorship for your start up.
- Willingness to take risks with an eye on substantial returns on their investment marks their approach.
- You will need to cede a degree of control of your business to angel investors, which may not be acceptable.
Crowdfunding has gained traction among entrepreneurs for funding their startups. With the arrival of platforms like Kickstarter, it has opened numerous funding possibilities for companies.
Crowdfunding is all about seeking funds from a large group of people. These people will support your company with relatively small amounts of cash. These people may always get to have anything to do with how your company is run. However, they collectively share a rather small risk each, because together they are interested in the success of the project.
This funding model is not limited to initial funding but can also be used for raising funds at a later stage for products and services.
- With crowdfunding, your business gets some free marketing push in addition to attracting finance for your business.
- Crowdfunding eliminates the hassles getting an investor interested in your business and gets some ordinary folks to have a stake in your business.
- Crowdfunding platforms see heavy competition for funding, and it may be difficult for your business idea to attract funds if it is like that of other competitors.
- Your business pitch must be at least as good as that of competitors to have a realistic chance of getting funded.
Venture Capital funds are focused on identifying and investing in businesses that hold the promise of fast track growth. They take the investing in business approach, partnering, rather than taking equity. When the business offers an IPO or it is acquired, they pull out, and seek other investment avenues.
- When Venture Capital investment comes close monitoring of the company’s performance and its progress it is instrumental in ensuring the growth of their investment.
- The mentorship and expertise that Venture Capitals provide go a long way in sustaining the growth of the business.
- You can only expect Venture Capitals to support your business for a period of 3 to 5 years. During this period, they recover their capital and profits and move on to invest elsewhere.
- You need to reconcile to loss control of your business as you choose to give up a substantial part of it to venture capital investors for the capital they infuse in the business.
- Venture capital investors tend to be focused on larger, stable businesses with identifiable workforce. Your startup will probably not measure up to these, as start-ups do not have that kind of stability.
Loans from Microfinance Providers
Microfinance companies offer finance to small-scale entrepreneurs that do not have access to conventional banking capital or loans. They offer microcredit to startups and small businesses.
- Lower interest rates than banks and conventional finance companies makes this option attractive to startups.
- Will be useful only for small startups as they advance only modest size loans.
Loans from NBFCs
Loans from Non-Banking Financial Corporations (NBFCs) are another option worth considering for startup loans.
- Loan seekers need to satisfy relaxed eligibility norms as against the requirements at banks. Documentation requirements are also less stringent. Processing of loans also happens faster than with banks.
In its bid to encourage entrepreneurs, the government provides startup business loans for your business through various programs. You need to submit a plan for acceptance accepted by the grant committee. If your business plan is approved after scrutiny, the government provides funds for your business.
- Government funding support for business generally comes with sizable surplus capital to help manage your startup
- The process of scrutiny, approval and eventual release of funds is long drawn out and time consuming and can try your patience.
There is no dearth of options when it comes to startup loans for eager beaver entrepreneurs. If they do their homework right there is nothing to hold them back in the pursuit of their dreams, not least the lack of startup business loans.