10 Business Financing: Finding the Right Funding Options

Many people have great ideas but sometimes they dont have money to realize the idea. Some go ahead and do it anyway and some give it up. We suggest if you have a well thought out Business Plan and have no funds, then here are the various list of funding and financing option available which you were not aware of.

Funding for your Start-up

Not only Funding method but also Funding time has to be right. Thoughtlessly raising money can lead you into a dangerous situations.

Before a new business owner can raise capital for their startup, they must first identify the different sources of funding, find the one that is most compatible with your needs, for which Stage and for future requirements.

In the beginning funds are need to build a product to take its form and to build a market around it. These kind of funds are called as Angel funding which are for short term.

And there are funds which you can raise for expanding your business which will be for long terms and which can be raised by financial institutes.

Financing/Fund Raising option for your Business

1. Invest Own Savings

When you can completely afford the expenses for building your dream product there is no need for you to go anywhere else, using your savings for business will be your best option as you will be the sole profit maker too.

2. Friends and Relatives

But usually we are not in case 1, so the next immediate option will be to take help from our friends and family. If you have establish yourself as a trustworthy person it will be a piece of cake for you. But make sure you take money from those who can afford to loose it, given the case that 90% Start-up fails. Be also prepared for facing questions about your business in family get-together.

3. Advance from bank and financing institutes

You can also take a personal loan by giving your business plan in some national banks which wants to help SME.

ex: SIDBI – Small Industries Development Bank of India, Bank of Baroda, Corporation Banks etc You keep seeing advertisement about it in newspaper, so go ahead and grab it.

Other options will be to pledge your gold and get money from some finance institutes. Some micro finance company gives loan but at very high interest rates.

4. Incubator Funding

In India there are several Incubation center set up by government, education institute and Big corporate companies.  You can approach them with your idea and if you get selected, not only will you get money and a office setup but also great resources for building your Business, like mentors and guide, access to some of the smartest people in the startup world, and they will give you advice on how to take your company to the next level. You will also be a part of a huge network that can help you get in front of potential customers and partners

For your second round of funding Companies can Raise Finance by a Number of Methods. To Raise Long-Term and Medium-Term Capital, you have the following options:

 

5. Venture Capitalists

If you are beyond the startup phase, have initial revenues coming in, and have a quality team in place, and a clear path to eventually sell the business or go public in an IPO, you could be ready to approach the funding pros – venture capitalists (VCs).

Keep in mind that their funding is very time-sensitive. VCs look to get their money and profits out as quickly as possible. They are a great source if your are planning for meteoric growth and will require further business financing in the future to achieve it.

Venture capitalists usually like investments in earlier stage companies to be in the 20% equity range. If you decide to try and get venture funding, it’s important to keep in mind that venture capitalists only offer terms to 1 or 2% of the deals they see. Be ready to do a lot of pitching.

6. Debt Financing

Long-term and medium-term loans can be secured by companies from financial institutions like State level Industrial Development Corporations or from commercial banks against the security of properties and assets. These financial institutions grant loans for a maximum period of 25 years against approved schemes or projects. Loans agreed to be sanctioned must be covered by securities by way of mortgage of the company’s property or assignment of stocks, shares, gold, etc.

7. Equity Financing

Debt Financing is money in loan form which has to be paid over a period of time, where as equity financing is the money you raise by selling ownership share of your company to any individual or institute. The main advantage to equity financing is that the business is not obligated to repay the money. Instead, the investors hope to reclaim their investment out of future profits. The main disadvantage to equity financing is that the investors become part-owners of the business, and thus gain a say in business decisions.

8. Public Deposits

You can use Public Deposit by inviting your company shareholders, employees and the general public to deposit their savings with the company. The Companies Act in India permits such deposits to be received for a period up to 3 years at a time. Public deposits can be raised by companies to meet their medium-term as well as short-term financial needs. Recently we had a case with Tata nano who took advance money from customer for the car and paid interest on the amount till the car is delivered. Advantages is lower interest rates than banks, no need to prove your credit worthiness.

9. Initial Public Offering – IPO

Also referred to as a “public offering”. The first sale of stock by a private company to the public. IPOs are often issued by smaller, younger companies seeking the capital to expand, but can also be done by large privately owned companies looking to become publicly traded.

IPO brings in lots of regulations and rules in the company as general public is involved.

10. Bailouts

Its not a type of raising money but it a form of loan given to a failing company. It can be another big company which is bailing you out or it can be Government  in order to prevent greater, socioeconomic failures.

In economics, a bailout is an act of loaning or giving capital to an entity (a company, a country, or an individual) that is in danger of failing, in an attempt to save it from bankruptcy, insolvency, or total liquidation and ruin  or to allow a failing entity to fail gracefully without spreading contagion

We have heard of Greece Bailout, Debate on Our own Kingfisher Airlines Bailout. And surely you dont want your company to be this situation anytime. 🙂

Wish you all the best with your Business Venture!