A startup might require funding, especially when they grow larger and scale their operations. Financial investment is needed in a company for product development, manufacturing, expansion, sales and marketing, office spaces, or inventory.
As an entrepreneur, you must be clear about why you are raising funds. Founders should have a detailed financial and business plan before they approach investors.
Now, once you have made a plan & realized the need for fundraising, here are some of the different sources for raising funds for your startup:
It is considered to be the first funding option because of its advantages. With self-funding, you hold complete control over your business, but you have all the risk too. This is suitable if the requirement is small. Some businesses need money right from the first & for such businesses, self-funding may not be a good option.
Crowdfunding is a concept of collecting funds from a large number of investors via social networking sites and web-based platforms for majorly business purposes. Crowdfunders are not technically investors, because they don’t receive a share of ownership in the business and don’t expect a financial return on their money. In return, they get the product you plan to sell or other special perks, like meeting the business owner or getting their name in the credits. Crowdfunding is popular because of its low risk to business owners, and suitable option for those who want to produce creative works like documentaries, or physical products.
Angel investors are individuals with surplus cash who are interested in investing in new start-ups. The risk involved in these investments is more, as compared to loans offered by financial institutions. Angel investor also holds the ownership shares in exchange for money, they can also offer mentoring or advice alongside capital. Business owners can create an online profile and promote their business on the business investment network. If there are interested angels, they’ll invest. But, before you reach out to an angel investor, make sure you have a proper business plan ready.
Loans under government schemes
The government of India has launched various loan schemes aiming to benefit startups, SMEs, MSMEs. It also promotes the socio-economic growth of rural India, women entrepreneurs, educated youth, individuals from SC/ST category, Small Scale Industries (SSIs), people living in rural and urban areas, etc. Loan schemes like MUDRA loan scheme under Pradhan Mantri Mudra Yojana (PMMY), Start-up India, Stand-up India, Atal Innovation Mission, Make in India and many more schemes to help startup enterprises.
Loans from banks
Banks are also considered to be a suitable option for raising funds for startups. It is a reliable and convenient way of getting money for your business. Banks provide funding in two forms named term loans and working capital loans. Almost every public and private sector bank in India offers business loans for the startup. The rate of interest, loan amount, and structure of re-payment may vary from bank to bank.
Funding is required to take the best advantage of the existing and upcoming market opportunities. Even if you initially go for bootstrapping, outside funding might be required for your business to sustain itself in the remote future.