Money is the fuel that keeps a business running. Business owners should be aware of the modes of financing available to them. It is also important to choose the right mode of finance that matches with the business's objectives and its resources.
Gone are the days when banks were the only source for procuring funds. Today, due to the emergence of various online lenders and NBFCs, business owners have a wide range of business financing options available to them. Determining the right time and source of funding requires expertise, research and financial prudence. Here are some funding options available for business owners in India.
Online lending
Online lending is convenient and reaches out to under-banked businesses across geographies. This has made them popular among small business owners. These lenders enjoy speed and accessibility, meeting the needs of quick financing. In a competitive business landscape, quick disbursal of funds is very important as it helps in maintaining the cash flow which is essential for the successful operation of a business.
Angel investors
Angel investors have scripted success for many small businesses with innovative ideas in India. They invest surplus cash in businesses in exchange for a certain return on their investment. Operating individually or in groups, angel investors have a higher risk appetite.
Venture capitalists
Procuring funds from venture capitalists needs an intriguing business idea. They usually invest in businesses against equity. Seeking funds from venture capitalists has a dual advantage. Along with funds, venture capitalists can provide guidance and act as mentors. Their experience can be useful for small businesses.
Though venture capitalists invest on a large scale, they seek returns within a short time (3-5 years). Hence, business owners should target generating high returns within a considerably short time period, if they want funding from venture capitalists.
Non-Banking Financial Companies (NBFCs)
NBFCs have changed the lending landscape post the 2008 financial crisis. While the lending norms of NBFCs are not as rigid as banks, the innovative service offerings by NBFCs are a value addition for the borrowers. Generally, their business loans are collateral-free, which is a big bonus for small businesses.
Business incubators and accelerators
These are ideal for the early stages of business. Various innovative ideas originating from academic institutions like business schools and engineering colleges can get a large degree of nurturing and guidance from business incubators and accelerators. IIMA's CIIE is a case in point. It helps entrepreneurs turn ideas into viable businesses.
Companies like Dropbox and Airbnb are products of incubator and accelerator support
Government programs
The Indian Government is doing its best to make the economic climate more hospitable for businesses. Under the Pradhan Mantri Mudra Loan Yojna, loans are available in the following three categories:
- Sishu (Max Rs. 50,000)
- Kishor (Max Rs. 5 lakh)
- Tarun (Max Rs. 10 lakh)
Under the programme, businesses can avail funds according to their needs. The corpus of the programme has grown manifold since its launch in 2015.
With so many available financing options, businesses are spoilt for choice. Choosing the right option is crucial for business owners to maintain the stability of their venture. It also helps them to tap existing opportunities and take their venture to the next level.
