Everything a company requires, including financing programmes, tax breaks, cash grants, everything must be available in the economy.
The lifeblood of any startup is finance. A significant portion of small enterprises that fail within the first year of operation do so is due to lack of capital or funding. This financial disability makes it difficult for businesses and entrepreneurs to operate their businesses, grasp their business strategies, or expanding business into new markets.
It’s uncommon for a startup to emerge from the founder’s mind with a solid business plan and ready access to capital. This frequently arises when the necessity for financing through many accessible options at the best rates and with the maximum benefits.
The availability of funding might seem complex and challenging for a first-time businessman. Let’s attempt to understand the available financing options for startups.
It is important to research options and plan a strategy based on the needs of the business as there are multiple ways to raise funds for a startup. Here, we’ll study about three of the foremost effective practices that startups can adopt to secure funding.
Peer to Peer (P2P) lending
Peer to peer usually means networking with someone who has the same characteristics as yours. P2P lending may be a type of financing where needy entrepreneurs connect with private investors for their financial requirements. By connecting on a P2P platform, businesses can enjoy more favourable interest rates while investors can see greater returns than traditional savings accounts or investment portfolios.
Bank Loans
Certain financial institutions design structured lending options from traditional bank loans to capital , lines of credit, invoice financing and glued asset loans for various types of business ventures which help them in setting up, managing and expanding their occupation.
Government Grants
The government has always played a crucial role in developing the country on a large scale. it gathered funds from various sources under different names which are later utilised in optimal ways to help flourish the economy.
The funds which will be obtained are categorized below:
Self-funding
Self-funding also referred to as Bootstrapping or Equity Funding, is that the most readily available source of funding. it’s an option to create funds using own savings or contributions from family and friends. This is often the most ideal funding source as it requires fewer formalities and compliance with minimum cost.
Crowdfunding
One of the most innovative systems in the corporate world, where contributions are made by large groups of individuals. It is a very well-known method of financing, where small businesses pitch their plans and methods to help new ventures and pledge money in support.
Angel Investors
They are individuals with high net worth and are knowns as High Net-Worth Individuals (HNIs) who contribute at the time of the initial set up of businesses in exchange for their significant share in the business.
Venture Capitalist
Venture capitalists specialize in funding startups by creating a pool of funds from various sources or other companies. They’re ready to invest in young businesses that appear to have a good ideas and a great management team.
Debt Financing
Raising capital by selling debt instruments to individuals and financial institutions is known as debt financing. It might be in the following different ways:
- Loan from Banking or Non-Banking financial organization
Unline Venture Capitalists or Angel Investors who become partial business owners, banks or Non-Banking Financial Institutions become business leaders by providing loans to the businesses . The periodical payment of interest and long verification procedures for these loans could also be a drawback of this funding option.
- External Commercial Borrowings (ECBs)
Creating money from outside the countries in sort of bank loans, buyers’/suppliers’ credit and securitized instruments (like non-convertible, optionally convertible or partially convertible preferred stock , floating rate notes and glued rate bonds etc).
- Government Funding
The government has a significant number of options in the form of incentives, grants, loans etc to assist the startups in setting up their ventures. This effort encourages entrepreneurs to implement their strong ideas into action.
There are multiple sources of funding available for startups. However, the stage of operation of the business typically decides the source of financing.
- Ideation
This is the stage where a strong brainwave appears as an idea to an entrepreneur with a question on how to implement it. At this first stage, mostly informal channels of raising funds are available for the startups to start .
- Validate
At this stage of business operation, ideas are ready to be implemented and validated for their potential to start a new venture.
- Early Stretch
This is the stage where the plans are already implemented and are being analysed for the further scope of improvements.
- Scaling
This is the growing stage of a startup, where the company’s scales are leading high within the market with increasing revenues.
- Declining
This is the stage where the executed ideas fail and the graph of the business is going down. There comes the necessity for the support of all the external and internal stakeholders.
- Exit Options
When the time involves set back, organizations must consider various ways to exit the market with minimal losses.
Investors always realize their return on investment from startups through various means of exit. Thus, it becomes necessary for a startup to analyse the simplest funding options available for their business by portraying their strong business plans.
Schedule a call with us today to understand the different startup funding options that are available for your startup/business.
