Importance of Funding for Small Businesses
Have you got great plans to start a business or to expand your existing business, but don’t have enough funds to implement your ideas? If yes, then you are at the right place.
In this article, we have brought together all the information about Small Business Funding options available in 2020 which can really help you to get funds your business.
“One always needs money, to make money!”
Before we dive in deep, let’s see the funding options available to an entrepreneur:
- Using savings
- Borrowing from friends and family
- A loan from Private Lenders
- Banks and NBFCs
The funding available is generally in two forms:
It is the money borrowed in whatever form which you have to pay according to the predetermined schedule, as per mentioned in the agreement. The interest rate and the tenure period for the repayment both are fixed at the time of lending only.
Equity is when money is given in exchange for ownership of some particular thing which belongs to you. Here, anything such your house, your business shares or any other property on your name can act as equity.
Alternative Business Funding Options in 2020
Peer-to-peer lending (P2P lending), is the platform for lending money to an Entrepreneur or a business. The service is provided online. There are P2P lending portals that match lenders with borrowers. Since peer-to-peer lending is done online, they cost less and as a result, the borrowers can get the service at cheaper rates than the financial institutions providing business loan in the market.
These platforms are in favour of both lenders and borrowers. Anyone having enough of funds can come on these platforms and can offer loans to individual. Hence, lenders can earn higher returns compared to what they will get when invested in savings and on other investment products. In this way lenders, even good interest at the same time borrowers gets it at cheaper rates.
- Simplified application process.
- High loan amount approval.
- Flexible Repayment period ( varies from platform to platform).
- The interest rate varies depending on your credit score and borrower’s profile.
- Minimal Eligibility requirement.
Angel investors are the one who invests money other’s business in exchange equity such as shares of the company, or it can be also against profit sharing. But, to invest in business angel investors always look for the potential to grow and make a profit of the company. If they don’t find that the company has enough potential they may refuse your offer. Angel investors are often wealthy individuals who have enough funds and to make more money from that they invest in someone else’s business. Before investing in any particular the first thing they check for is the business plan, so it becomes mandatory to have a crisp business idea in terms to get funds from an Angel investor.
Micro-financing is also among the one which can act as an alternative to funding your business in 2020. Micro- financing is the small loans which are offered to those who belong to a low-income group or the minority of the society. These are short-term loans at the low-interest rate offered by most of the lenders such as NBFCs or banks. One can use this loan for their business owners and or even for startups.
Eligibility to avail this loan may vary from lender to lender, but this is one of the best option available to you to fund your business.
- This provides funding to startups and other small businesses.
- Funders are provided at comparatively lower interest rates.
- The average loan term ranges from 2 years to 5 years.
Business Line of Credit
Business lines of credit operate the same as a credit card and thus provides you with the flexibility to use it as per your requirement & convenience without reapplying for a new loan each time.
However, the limit allotted generally depends on the applicant’s profile, business scale and repayment capacity.
Same as the credit cards, interest is charged on the amount used and you need to pay monthly EMIs for it.
India has witnessed more than 39K startups recently and still many more are being added in this count daily. Apart from the startups, there are crores of micro, small, and medium enterprises (MSME) companies flourishing in the country at the same time. As there are so many companies so, the need for funding is also more and due to lack of funding options in India companies are taking help from global investors. Seeing this Indian government has started many schemes to support the startups and medium and small scale enterprises in the country.
List of government initiatives to support Indian Entrepreneurs:
- 4E (End to End Energy Efficiency)
- Standup India
- Pradhan Mantri Mudra Yojana (PMMY)
- Bank Credit Facilitation Scheme Credit Guarantee Scheme (CGS)
- Credit Linked Capital Subsidy for Technology Upgrades
- Coir Udyami Yojana
- MSME Business Loans For Startups In 59 Minutes
- SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
- Sustainable Finance Scheme
- National Small Industries Corporation Subsidy
Credit Guarantee Scheme (CGS)
The scheme is applicable for new and existing small and medium enterprises engaged in manufacturing services. The scheme doesn’t provide funding to retail trade, educational institutions, agriculture, and self-help groups.
Credit Linked Capital Subsidy for Technology Upgrades
The scheme is applicable for the existing small-scale industry, startups registered with the State Directorate of Industries. To avail this scheme the industries should have upgraded their existing machinery and plants with modern equipment and technology.
MSME Business Loans for Startups In 59 Minutes
This scheme can be availed by existing businesses. To qualify for this scheme the applicant should be GST, IT compliant. Bank statement and ITR form will also be needed in terms to qualify.
SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
This scheme can be availed by all the new enterprises in the manufacturing and the services sector. Existing enterprises in the above-mentioned felid can also avail this scheme for the expansion, modernization, technology upgradation of the firm.
If you are looking to fund your business, the information provided in this article will definitely help your business.