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How can I fund my startup? 7 avenues to consider

By Finserv MARKETS - Aug 30,2019
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7 Avenues to Consider to Fund a Startup

Introduction

In the age of the start-ups and buzz words like disruption, Swami Vivekananda’s words, “my hope is in you. Will you respond to the call of your nation? Each one of you has a glorious future if you dare believe me. Have that faith, each one of you, in yourself and you will revive the whole of India” ring true, more than ever. It is perhaps fitting that the day of his birth be celebrated as National Youth Day in India.

One must know that there are 2 models of funding for a startup: one which costs you equity, and another which costs you debt. Third, there are grants and gifts but this is less feasible for profit-seeking businesses. It is because grants are much more common for purposes like charities, nonprofits, or social enterprises. Rates are usually terrible and if you do not have a steady inflow of cash, you might end up saddled up with that burden for years.

How can I fund my startup? 7 avenues to consider

Small business loans are one of the traditional avenues for funding but they are often restricted to the ones with existing cash flow or some kind of collateral to put up. On the other hand, equity means bits and pieces of ownership in your business offered up at market value in exchange for money. Investors will typically deal in with this. To offer equity to an investor, you need to have some perceived value or proof of concept. Entrepreneurs have the tendency to reduce the amount of equity they give away. It is because this indicates lower profits for them in the future. This is turn can be risky, if more than half a company’s equity is sold, there is a potential loss of control. To publicise business loans for entrepreneurs, key features would be lower interest rates, low to zero processing fees, no collateral or third-party guarantee necessary in most cases and loan tenure of up to 10 years. Now you can avail National Youth Day special business loans for entrepreneurs via Bajaj Finserv which provides financial assistance for technically qualified, trained and experienced entrepreneurs for setting up new viable industrial projects.

In the entrepreneurship space, the trend is changing and there has been a lot more women, who are breaking the rules of the game, challenging the norm and achieving enormous success. This is a good thought to celebrate National Youth Day, which marks the birth anniversary of social reformer, philosopher and youth icon, Swami Vivekananda.

Now you can expand your venture by investing in its infrastructure, stocking goods, building a new warehouse, and maintaining cash flow with a MSME loan for entrepreneurs from Bajaj Finserv. Women entrepreneurs can now avail business loans for entrepreneurs offered by Bajaj Finserv.

Listed below are the ways in which you can finance your startups:

1. Family & friends

 Let’s start with the most feasible option, which is to start with your inner circle and branch out when it comes to selling your business. Start seeking funding for your business from close ones–family and friends. Bankers and investors often refer to this as “patient capital”, which strictly means money that will be repaid later as your business starts flourishing and profits increases. This option has many advantages: Those close to you are much more likely to take a risk or chance on you and your idea in good faith and lend the money to you at a low interest rate or even no interest rate at all, or may ask for a lower amount of equity; money coming from people you know makes you much more committed to success; there is a chance that your friends and family will stay at a supportive distance instead of breathing down your neck like some investors might. Last but not the least, this is a very personal decision to make and some of the best startups in the world have resulted from love and friendships, as did some disasters. Hence, it is advised to tread cautiously.

2. Crowdfunding platforms

 To get started with, you have to first present an idea that you want to receive funding for. From there, people can choose how much they want to give towards that project. What’s in it for the people funding the project? Most crowdfunding sites operate on a reward base model. Those who invest their money into a project are given rewards that go up in value according to how much money is invested. Some of the most well-known crowdfunding sites include Kickstarter, Indiegogo, and Fundable.This involves funding a business by taking small amounts of capital from a large number of people through the internet. This makes use of the vast networks you have of your friends, family and colleagues via different social platforms to get the word out about the business, along with the goal of attracting new investors. It has the potential of expanding a business by getting a pool of investors who can help raise funds. This mechanism allows businesses to pool small investments from several investors instead of seeking out a single investment source. A cautionary note here would be the fact that some sites have payment-processing fees or require business to raise their financial goal to keep any of the raised money. Hence it is important to read the fine print of different crowdfunding sites before making your choice.

3. Venture capital:

capitalists take an equity position in your company to help it carry out a promising but higher risk project. They are investors who put in a considerable amount of money in exchange for equity in your business and get returns when the business goes public or just in case is acquired by another company. Venture capitalists only invest in businesses that have the potential of providing good returns. They not only provide funding, but can offer expertise and mentorship to help develop the business. What’s best about venture capital funding it that it gives the business immediate credibility and opens other doors to a wide network of important individuals, such as future investors and partners.

4. Angel investors:

These are wealthy individuals or entrepreneurs or retired company executives who invest directly in small firms owned by someone else. They are often leaders in their own field who not only contribute their experience and network of contacts into your business but also provide technical and management skills. They reserve the right to supervise your business’ management in exchange for risking their money. In other words, they often demand a seat on the board of directors and an assurance of transparency.

5. Government grant or loan:

This is often overlooked as many people don’t know that their government is offering convenient loans or full-on grants for aspiring entrepreneurs. It is because new businesses are a large source of economic growth in industrialised economies and governments have it in their best interests to support the individuals willing to take the risk and start their own business. These are often referred to as small business administration loans. These types of fundings help small businesses get capital and ensures that a certain percentage of contracts are awarded to small businesses. This process helps improve the relationship between lenders and borrowers and the increased chances of obtaining a bank loan if the small business loan is properly managed.

6. Partner financing:

With strategic partner financing, another player funds the growth of your business in exchange for special access to your product, staff, distribution rights, ultimate sale or some combination of those items. These act like venture capital in the sense that it acts like an equity sale (not a loan), even though sometimes it can be royalty-based where the partner gets a piece of every product sale. Partner financing is a good alternative because the person you partner with may be associated with a similar industry, or an industry with an interest in your business. If you partner with a large company, you are bound to be blessed with relevant customers, salespeople and marketing programming that you can tap right into, assuming your product or service is a compatible fit with what they already offer.

7. Bank loans:

Bank loans are the most common source of funding for small and medium-sized businesses. All banks offer different advantages, whether it’s personalized service or customized repayment. Your business must have a sound track record and an excellent credit. A good idea is not enough as it has to be backed up with a solid business plan. Start-up loans will also typically require a personal guarantee from the entrepreneurs.

Applicants with a net monthly income between Rs. 37,000 in Tier 1 cities and Rs.27,000 in Tier 2 cities are qualified to apply for a business loan, available on Finserv MARKETS. Along with the net monthly income, the location of applicant’s residence, be it urban, rural or semi-urban has also to be provided. The type of residence, whether it is on rent, family-owned or self-owned is also a crucial factor for approval of the loan.

 

How can I fund my startup? 7 avenues to consider
Source: Quartz

Conclusion

If you are a small business owner and require capital, it is better to get in touch with credible lenders. Alternative lenders provide tailor-made loans for small businesses with features like pre-approved business loans, improved flexibility and quick processing. Small start-up loans can be utilised for a variety of purposes ranging from the renovation of the office to machinery repair. At Finserv MARKETS, you can check your eligibility, calculate monthly instalments and apply instantly for small business loans.

You can also read about myths related to business loan calculator. Get to know the benefits of business loan.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere!

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