Small Business Financing Options: Ensuring Support to Small Businesses

There is numerous small business financing options available. Being a small business owner comes with loads of ups and downs, there may be victories, losses, calm waters, setbacks, and whatnot. In the current scenario and from time immemorial, starting and running a small business can be a nightmare. In the first few years of business, small companies come across a lot of different challenges. Some are harder than others to overcome. Small business owners find it arduous to attract and keep top talent in nexus that can help them to grow. Since we all know that the small business owners are the future of our Nation, therefore, every possible step is taken by the government of India and our Organization to bring forth the talent on the global platform. 

However, a leading cause for any business failure can be insufficient capital to start the new venture and the cash flow. 79% of the small business fails because of the too little money through which they start their business. Hence, the most crucial factor for running a successful business is “securing for it, the source of financing any business.”

“Finance is not simply about making money. It’s about accomplishing our deep goals and protecting the fruits of our labor. It’s about stewardship and, therefore, about achieving the good society.” – Robert J. Shiller

Chief Small Business Financing Options

Any business onwer requires financing options for small businesses to meet payroll and day-to-day expenses, manufacture new products, execute marketing programs, and expand facilities to meet market demands. A small business can find it a tedious task to arrange for their finances. Adequate Finance and innovative ideas, when combined, can lead any business to take a pounce in terms of success. A significant part of the business is related to financial success. The ability to know what funds you have available, from what all sources you can avail the funds, smart business decisions can often determine the success of the business. Finance indeed is a very subtle factor that can break or make the entrepreneur. Financing in our eyes is the essential factor undoubtedly, but an element of utmost importance which we tend to ignore is the “small business financing options.”

For a young small business in India, like anywhere else on a global level, finance is vital for success and sustenance. Fundraising on a consistent and efficient basis is not the simplest of the tasks to accomplish. Still, it does not have to be the most difficult one, either. Banks tend to be the initial and most preferred source of raising funds or capital at a traditional level. However, they don’t necessarily have to be the only option.

The initial solid push is exceptionally crucial for a business to get to the revenue generation stage and a profit minting stage. That push originates from money. It might be for a brand new business commenced or a small business looking to soar high.

Plethora of Financing Options Available

There is an availability of a plethora of financing options for small businesses. Despite that, one of the budding entrepreneurs’ toughest decisions is to evaluate various sources of income and raise the money needed to get going. You might consider yourself skilled enough, but convincing others of your idea can prove back-breaking. If an entrepreneur is unable to raise capital finances, he might never be able to turn his idea into reality. The crucial factors before raising capital finances include: how much to borrow? Where to borrow from? How to use the money borrowed? 

Small Business Financing Options

Available prominent small business financing options for small businesses owners’ include:

• Personal Investment– Personal investment is the saving of the organization itself that is crucial for one and all. The advantage of investment through a personally generated fund is that it combines the act of investment and saving simultaneously. Personal investment ensures present as well as future long-term financial security. Investment is concerned with proper money management.
• Public Deposit– One of the most efficient manners of securing investment for short-term Finance. Funds that companies raise from the general public in order to finance its short-term and medium-term requirements. These deposits are considered one of the cheapest financial sources. It’s an essential tool for saving tax liability.  
• Loans from Banks– Commercial banks can provide loans to meet short-term needs or for working capital. A loan is a debt rendered from one entity to another entity. The first place that hits the mind after hearing the term loan is the bank. As banks are engaged in lending activities and also have various loan products for the borrowers, they go for the loans that fulfill their needs.
• Trade Credit– The next effective way of borrowing money to carry out the business is borrowing money on credit. Trade credit is known as an external source of working capital financing. When a supplier of goods or services permits customers to go for making payment at a further date, trade credit arises in such a situation. It is a spontaneous source of financing. Also, it transports the focus of the business on core activities.

Other Significant Options

• Family or Friends– Approaching your close friends and family members for small funds can play wonders for small business owners. The considerable advantage associated with this source is that they can offer loans without security or embrace less security in comparison to banks. Furthermore, they will be giving their nod to a more extended repayment period. As your friends and family members are well aware of your nature and your character, convincing them won’t be a difficult task. Even a less detailed business plan would be enough for them.
• Crowdfunding– Crowdfunding is the trending method of acquiring funds for business by keeping the cause before the crowd and informing them of their business benefits. When a new business venture gets financed by utilizing a small amount of capital from a major chunk of individuals, then the term for such financing is known as crowdfunding. When a new business venture get financed by utilizing a small amount of capital from a major chunk of individuals, then the term for such financing is known as crowdfunding. It’s one of the proven methods of small business financing options in India. It holds the concept of micro financing as well as crowd sourcing. It is a rapid way through which raising fund takes place. In recent times, it has emerged as one of the effective financing tool.

For a new small business venture in India, like everywhere else all around the world, finance is the significant factor that may lead to success and sustenance. Consistent and efficient fundraising is not regarded as the easiest of jobs. Still it does not have to be one of the most difficult one either. Traditionally banks tend to be the initial and one of the most preferred sources of raising capital. Although, there have always been several options but banks earn the reputation and became people’s first priority.

Ways to Raise Money for a Small Business

The solid push at an initial level matters a lot in order to drive a business to get to the stage of profit-making and revenue generation stage. That push emerges from money. It might be for a brand new business starting or a small business looking to scale up.

There are numerous ways through which raising money is easily possible. Several other reliable options can be explored to raise finance for a small business in India. The options are given below-

Angel Investors

• While most of the business owners and entrepreneurs are familiar with angel investors, in simple terms, these are persons with interest, initiative, and investing power looking to vest in businesses.
• These folks keep a close watch on all the sectors that they think will work in favor of them and will be keenly interested in funding or financing businesses that meet their criteria of profitability.
• Typically, they operate as a segment of networks where they scour through several proposals as well as business plans to finally pick which ones they will be supporting. Angel investors come under small business financing options.
• Getting the nod from the end of angel investors to fund a business is a massive deal for most businesses.
• Depending upon their expertise and background, angel investors also tend to show a keen interest in the business and grant advice and suggestions for upgrading the revenue generation.

Crowdfunding

Crowdfunding is already a great fundraising option along with one of the smartest small business financing options, albeit an equitable competitive gulf. As the popularity of crowdfunding is on the rise and it is easily accessible, crowdfunding is eventually turning out to be a preferred method most especially for startups in India. It is a major part of small business financing options in India.

 Crowdfunding refers to getting individuals in order to invest or grant money for business purposes by accumulating it out on a crowdfunding stage. Of course, the idea has to have potential, and the investors should see some return on investment before they commit. Even so, this one is a fairly new age method, and those who know how to play it properly can get good support for their business or business idea. This link lists the top 15 crowdfunding websites/services in India.

Lending Institutions

• In our country, many independent lending institutions are available all the time to offer help in raising finance for the enhancement and upliftment of small businesses located in India.
• These lending institutions exist to meet the demand of small, young, and budding entrepreneurs who have to face difficulties taking their proposals to traditional sources.
• Even though their level of reputation fall short in front of banks, the financial backing delivered by them is great for those business owners who are indulge in small and medium-scale business.
• There are various institutions like Lendingkart accomplishing their tasks in the geographical boundaries of India.
• The need for securing a loan is likely to be exhaustive for a small business at most of the banks.
• These lending institutions are expressing their will to take the calculative risk in order to finance a small but healthy business if basic eligibility conditions are fulfilled.
• Also, it’s not wrong to say that lending institutions are very effective source concerning small business financing options in India.

Bootstrapping

• A small business craves to have a significant capital at the time of scaling up or expansion of the business.
• Besides this, it can also be for acquisition of equipment, payroll management or logistics. Bootstrapping entails either putting one’s own money into the business or acquiring some money from family members and friends at low interest rates.
• Bootstrapping can be one of the crucial modes of securing finance for small businesses as well. It’s vital to comprehend that this method works well if the requirement for loan is not too high.
• Bootstrapping also come under small business financing options.
• In addition to this, it’s very important to put efforts as well as resources in different areas instead of concentrating and investing in one direction.

Venture Capitalists

• A majority of the venture capitalists prefer to lend their support to existing small businesses as opposed to young companies and startups.
• Venture Capitalists also come under small business financing options. If they discover proof of scalability along with the potential, they come on board with financial assistance as well as expertise, a lot of guidance, and mentorship.
• The concept of funding from a venture capitalist is somewhat similar to seeking diamond in a coal mine.
• It’s too difficult to come by, but scores unbelievably big points for a small business owner.
• They tend to stick with the business till the time it’s either acquired by someone else or till it goes public.
• The only probable downsides associated are that they exercise command and there is a substantial accountability towards the venture capitalists.

Conclusion

At Aatmnirbhar Sena, we provide a framework for small business owners, which would lead them towards fulfilling their dreams of running a successful business. Under its Aatmnirbhar Bharat Scheme, the government has provided free collateral loans to MSME and certain other relaxations for stressed MSME’s. There are more than ten government business loan schemes in the form of the MUDRA scheme, Aatmnirbhar scheme, and MSME loan under 59 minutes, Stand up India scheme, etc. 

Efficient small business financing options help keep the machinery of business operative and geared for the upcoming challenges.