Funds are the lifeline of any enterprise. For a firm to start, succeed and sustain, consistent and adequate funding is of utmost importance. Without regular flow of finance, all the other operations of the businesses including production, marketing, and selling among others become stagnant. Especially, in the present business environment which is fast paced, dynamic and highly volatile a secured stream of financial resources is important to defend the start-up against the harsh competition and market shocks. Narendra Modi Govt Clears Payments of Over Rs 6,800 Crore Owed to MSMEs Over Past 3 Months.
As the start-up ecosystem bloomed in India, it has become easier for young entrepreneurs to procure funds on lenient terms of repayment. The central government has also through its Start-Up India initiative, opened funding avenues for start-ups. Here are five options a start-up owner has to avail easy and regular funding –
One readily available option for start-ups to avail funds is through venture capitalists. A venture capitalist is a private equity investor which provides seed capital to start-ups exhibiting potential of high growth in exchange for an equity stake in the firm. It provides funds at early, growth and later stages of business cycles. Apart from the funds, venture capitalists also provide expertise and monitoring of the business operation of the start-ups. Mostly, VCs invest in equity and once the business releases its IPO or is subscribed, they exit.
An angel investor is an individual with high-net worth and surplus financial resources, who provides funding to small start-ups or entrepreneurs with high-yielding business plans to earn huge revenues from the investment. It is also known as a private investor, seed investor or angel fund. Though angel investors usually have higher return expectations and offer lesser investment amounts, they can prove be highly beneficial of start-ups in their early stages or during expansion. Finance Ministry Sanctions Rs 1.61 Lakh Crore Worth of Bank Loans to MSMEs Under ECLGS to Battle COVID-19 Pandemic.
Business Accelerators and Incubators
Various investment and asset management firms work as business incubators and accelerators for other enterprises. While a start-up looking for seed capital or early stage investment needs to look for a business incubator, they ‘incubate’ potential business plans with a hope of turning them into successful enterprises. A business accelerator comes into picture when an already existing firm looks for expansion or diversification and need money for the same, it ‘accelerate’ the business.
Banks and NBFCs
Banks and Non-Banking Financial Companies (NBFCs) also provide quick loans to start-up owners at easy terms and conditions. However, these institutes consider more factors other than growth potential before offering the loan. They may even ask for a collateral security or a guarantor. The rates of interest are higher than the other funding alternatives. A start-up owner can apply for a term loan to buy fixed asset or do construction or working capital loans to meet day to day administrative and functioning requirements.
Sourcing capital through crowdfunding has garnered lot of attention and popularity in recent times. It does not require any organised institute; the founder raises funds from more than one person at the same time. In crowding funding, more than one investor is involved. These investors offer a fixed amount of funding depending on several factors including his budget, in return of regular and high dividends. One can gather funds from family, friends and co-entrepreneurs that believe in the start-up potential.
It is crucial that the start-up owners are aware about all the funding alternatives available to them. They should carefully analyse all the terms and conditions of procurement of funds and make informed choice. Regular and low cost financial resources keep the start-ups afloat.