Starting a business is not everybody’s cup of tea as it requires an innovative idea, resource management, team effort, and much more, but first and foremost, it demands initial funding to set up your enterprise. Whether you want to design an excellent website, purchase an office space or machinery for your business, a substantial amount of capital is needed to get things up and running in the early days. To succeed in a business, you will need not only capital, but a proper strategy on how to handle different things. It needs lots of experience and knowledge in the field and experts from Entrepreneurs Hub can help you with it.
While the money required during the initial phase entirely depends upon the nature and type of your business idea, acquiring it at the earliest brings a sense of relief and accomplishment to focus on the long professional road ahead. Raising capital for building your enterprise might seem like a daunting task at first. Still, there are multiple avenues to obtain the money, such as start-up loans, angel investors, venture capitalists, bootstrapping, crowdfunding, etc.
Infographic created by Donnelley Financial Solutions, an SEC reporting software company
Scroll down to in detail about the different ways to acquire money for starting a business.
A secure and effective way of financing your start-up, bootstrapping, or self-funding involves money accumulated from your savings account, credit cards, and selling or mortgaging your valuable assets in exchange for cash. This method can be quite beneficial because there won’t be any monthly installments or high interest rates to worry about. One can entirely focus on business expansion and productivity. Some entrepreneurs opt for bootstrapping until their business starts generating revenue, which might help them create an effective business model to showcase their skills and acquire more money from different sources.
Family or friends
The second-best option to consider while accumulating funds to build on your business idea is asking your relatives and friends before opting for external avenues. While all of them may not lend you the money, some might have surplus money which they would gladly offer you to help you get started. Another key benefit of opting for this financial source is that you will get the lowest business loan interest rate possible in it. As it might involve emotional investment from both sides, the associates might give you some business expansion ideas and words of encouragement. However, you must prepare a business model and communicate the plan very clearly so that they are aware of all the profit and loss margins before investing in your endeavor to avoid any conflict in the future.
Angel investors or venture capitalists
While one needs a unique and solid business plan to successfully extract money from an angel investor or venture capitalist (VCs), the most important thing to focus upon is that you might have to share come control of the emerging business and profits with the lender. Established business professionals with high net worths who are eager to invest in promising business models can lend you large sums of money provided that you demonstrate your profound knowledge and pitch an exceptional business proposal with a potential for generating steady revenue over time. However, you must proceed with caution and an exit strategy in mind while contacting VCs. They usually expect a return of 3-10 times their original investment in the next few years.
Another critical source to acquire capital for your start-up is financial institutions such as banks or NBFCs that could fulfill your business loan requirement. With an airtight business plan and excellent credit score, you can easily apply for a business loan in India. In case you are planning on establishing a micro, small or medium-sized business, SME or MSME loans are your best bet as they are a collateral-free form of credit that is processed with minimal paperwork. The loan amount is quickly disbursed in your account. Offered at an affordable interest rate and flexible repayment tenures without any obligation, business start-up loans could greatly help bring your ideas to reality.
Crowdfunding or crowdlending
When a large group of people is persuaded to contribute towards funding a business proposal, it is called crowdfunding. Even though it might take some time for the entrepreneur’s idea to spread through social media and other promotional platforms, the demand for the product gradually increases once it generates interest among the crowd and the cash starts to flow in. Usually, the crowd receives a gift or the product you’re developing in exchange for their investment.