Last Updated on August 9, 2023 by Guest
For small businesses, having access to enough capital is one of the main prerequisites for success. Unfortunately, many small business owners face significant capital shortfalls when launching and running their businesses. Luckily, a few strategies are available to help them finance their operations. This article discusses several effective strategies for overcoming capital shortfalls and obtaining financing for small business ventures.
8 Smart Things to Do to Raise Extra Funds for Your Small Business
1. Approach Angel Investors
Angel investors are individuals with excess cash keen on investing in new start-ups in India and globally. Unlike loans from financial institutions, Angel investors are inclined towards investing in start-ups for higher returns and profits, which also entails a higher level of risk. Some of the prominent Angel investor groups in India are Mumbai Angels, Indian Angel Network, and Hyderabad Angels. Aspiring start-up owners can directly approach these investors for funding assistance.
2. Avail of Small Business Loans from NBFCs or MFIs
Another option for small businesses to raise capital is to explore small business loans from Non-Banking Financial Companies (NBFCs) or Microfinance Institutions (MFIs). These organizations specialize in providing financial assistance to small businesses and startups that may not meet the strict requirements of traditional banks.
NBFCs and MFIs offer flexible loan options and may be more willing to take on the risks associated with lending to new or small businesses. They may also offer faster loan processing times with their instant loans for self-employed people, making them a more convenient option for small business owners needing quick capital.
However, it is important to carefully review the terms and conditions of any loan before accepting it, as interest rates and repayment schedules may vary widely between lenders. Small business owners should also ensure that they have a solid plan in place for repaying the loan on time to avoid any negative impact on their credit score or future lending opportunities.
3. Explore Cloud Lending and Crowdfunding Platforms
Crowdfunding typically involves soliciting funds from a large group of individuals through dedicated crowdfunding websites. In return for their investment, backers may receive a gift or the product being developed by the business. Crowdlending operates similarly, with the key difference being that funders expect to be repaid with interest.
Cloud lending platforms, such as Fundbox and BlueVine, offer fast and flexible loans to small businesses that cannot secure funding from traditional lenders. These platforms leverage technology to analyze a business’s financial data and provide instant loan approvals, making them a convenient option for small business owners needing quick access to capital.
Crowdfunding platforms, such as Kickstarter, Indiegogo, and GoFundMe, allow small businesses to raise funds from many individuals online. This option can be particularly useful for startups and innovative businesses with a strong social media presence or community following. Crowdfunding can also serve as a marketing tool, allowing businesses to showcase their products or services to potential customers and investors.
4. Partners and Venture Capital (VC)
Another option for small businesses to raise capital is to seek out partnerships or venture capital (VC) funding.
Partnerships can provide access to new resources, networks, and expertise that can help a small business grow and scale. This could involve partnering with other businesses in a complementary industry, or collaborating with suppliers or distributors to expand their market reach. Partnership arrangements can take various forms, such as joint ventures, strategic alliances, or licensing agreements.
Venture capital (VC) funding is an alternative option for small businesses with high growth potential. VC firms typically invest in early-stage companies that offer innovative products or services and possess a strong business plan. In exchange for funding, VC firms typically take an equity stake in the business, ranging from 10% to 50% or more. This type of funding can give businesses access to significant resources, networks, and mentorship to help them scale rapidly.
It is important for small businesses to carefully evaluate the terms and conditions of partnership or VC funding before accepting any investment. These arrangements can come with high expectations for growth and a loss of control over the business. Small business owners should also ensure that they are prepared to manage the demands of these relationships, including reporting requirements and performance metrics.
5. Government Schemes
The Government of India has launched several loan schemes to support small businesses and promote economic growth across the country. These schemes are tailored to benefit various sectors of society, including rural communities, women entrepreneurs, educated youth, and individuals from marginalized backgrounds.
One such scheme is the Pradhan Mantri Mudra Yojana (PMMY), which offers micro and small enterprises MUDRA loans. Start-up India is another initiative that supports new ventures, offering to fund, mentoring, and other resources to help them grow and succeed. PSB Loans in 59 minutes is a digital platform that enables small businesses to apply for loans from public sector banks within a short time frame. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provides collateral-free credit to small enterprises. Stand-up India promotes entrepreneurship among women and SC/ST entrepreneurs.
Other schemes such as Atal Innovation Mission, Make in India, and Trade-related Entrepreneurship Assistance and Development (TREAD) provide further support to small businesses through various initiatives. These schemes offer a range of benefits, such as credit access, training, and networking opportunities, which can be instrumental in helping small businesses succeed.
By leveraging the support of these government schemes, small businesses can access critical funding and resources to grow and scale their operations. However, it is important for entrepreneurs to carefully evaluate the terms and conditions of each program to ensure that they align with their business goals and objectives.
6. Peer-to-Peer Lending
Peer-to-peer (P2P) lending is a type of lending that enables borrowers to connect directly with individual lenders, bypassing traditional intermediaries like banks and financial institutions. Under this model, borrowers can access funds for their startup ventures while investors earn interest on their investments.
P2P lending offers several advantages over traditional lending models, such as lower interest rates, flexible terms, and a streamlined application process. Additionally, P2P lending platforms are often more accessible to individuals who may have difficulty obtaining credit through traditional channels.
P2P lending institutions in India are regulated by the Reserve Bank of India (RBI) to ensure the safety and security of both lenders and borrowers. This regulatory oversight ensures that borrowers receive fair interest rates and that lenders receive a reasonable return on their investment.
7. Checkout the Latest Business Credit Cards
Credit cards for business purposes have become increasingly popular in recent years, particularly among start-up enterprises. For start-ups that do not require large amounts of capital at the initial stages of their business, credit cards can be a convenient way to handle transactions and avoid debt and penalties associated with missed payments.
Credit cards offer several advantages for start-ups, including ease of use, flexible spending limits, and the ability to earn rewards points or cashback on purchases. Additionally, credit cards can help start-ups establish and build their credit history, which can be important when seeking additional funding in the future.
However, it is important to note that credit card debt can quickly spiral out of control if not managed carefully. Start-ups that choose to use credit cards as a financing option should have a clear plan in place to repay the balance promptly and avoid accruing excessive interest charges.
8. Approach Your Friends and Family for Help
If you’re not quite ready to seek out a lender or investor and to bootstrap your business isn’t a viable option, turning to your personal network for help can be a viable alternative. While asking friends or family for financial support may feel uncomfortable, it can be a solid option to help get your business off the ground.
When approaching your personal network for investment, it’s important to communicate how their investment can benefit your business and offer them a compelling investment opportunity. Creating a formal contract can help hold you accountable and reassure your friends and family that you’re serious about the investment.
Establishing clear repayment terms in the contract is crucial and ensuring that both parties are comfortable with the agreement. Depending on your relationship with your personal network, securing a loan or donation can be quick and provide the necessary support for your business to thrive.
Our Guest Contributor
Tanvi Kaushik specializes in Content Marketing and works with the Digital Team at KreditBee – India’s fastest personal loan platform where self-employed and salaried professionals can easily avail of personal loans in just a few minutes when in need of quick funds. Tanvi writes to-the-point articles on personal finance and budgeting, which her readers genuinely appreciate. She is committed to making money matters easy to understand,, even for the layman. Her commitment to her work doesn’t stop her from pursuing her hobbies of hiking, trekking, and going on adventurous trips.