As per a government report, India has the third-largest start-up ecosystem in the world. The same report shows that the country is home to around 50,000 start-ups.
The fast-paced growth of start-up businesses in India can be attributed to the availability of various financing options in the form of startup loans. Backed by a strong business plan and numerous funding options, budding business persons/entrepreneurs can establish their business without any worry. Read on to know the six financing options available to get start-up business loans in India.
- Angel financing
One of the popular options to obtain funds to fuel the start-up business is angel financing. It refers to an investment model where ‘business angels’ (high net worth individuals) offer financing support to small budding businesses and demand equity in the concerned companies.
These financing options can be seen as a combination of high risk and high reward as these investors invest a significant amount in potential small business ideas with an expectation of high return. Apart from providing financial assistance, these investors play a crucial and active role in the business (such as providing advice to the board, broaden the network, etc.) to make it more dynamic.
The list of popular financing options for startup loans includes crowdfunding. This type of funding refers to the use of a small amount of capital from a large number of individuals to fund a business.
Crowdfunding primarily operates through a vast network of people available on social media or crowdfunding websites.
Further, this initial open forum discussion or product marketing aspect of crowdfunding helps start-up businesses build trust among investors in the long run as well as build their business brand.
- Venture capital
Every enterprise needs funding to start and continue its operations. Here, budding businesses can consider venture capital as a great start-up loan option.
Venture capital is a form of private equity and a type of financing option that wealthy investors invest in a business, which has exceptional growth potential. The capital that is invested is called venture capital, and the investors are called venture capitalists.
Venture capital investment is completed when a venture capitalist buys equity in early or later-stage companies. The investment is locked for a specific time or liquidity event, i.e. to the time the company is acquired or goes public.
These investors can provide funding at various levels of the business. However, it usually involves early and seed round funding. Venture capitalist involves considerable risks of uncertain return.
- Incubator and accelerator
Start-up incubators help an entrepreneur or small start-up businesspersons enhance their business ideas and build their company from the seed level. Start-up incubators nurture and mentor small businesses so that they can pass the initial idea stage.
A start-up accelerator is an organisation that extends membership, capital, and connections to investors and business partners. This organisation offers early-stage companies, which have a minimum viable product (MVP), with proper education, resources, mentorship to promote the operations.
- External Commercial Borrowings (ECB)
Start-ups looking for business finance can consider External Commercial Borrowings to fund their businesses. This type of funds can be availed from non-resident lenders in the form of bank loans, suppliers’ credit, buyers’ credit, securitised instrument (floating rate notes and fixed rate bonds).
In India, start-up entrepreneurs can borrow the funds by following two ways, namely automatic route or approval route. Individuals must learn about the eligibility criteria of these borrowing options.
- Loans from financial institutions
Apart from the funding options, entrepreneurs can avail loans from financial institutions. The government has introduced several loan schemes, credit schemes (For example, CGTMSE) to promote entrepreneurship and start-ups in India. However, companies must adhere to stringent eligibility parameters and documentation procedures to acquire such funding.
In such cases, entrepreneurs can opt for unsecured startup loans for their businesses from reputed NBFCs, such as Bajaj Finserv. It offers business loans of up to Rs.45 lakh at competitive interest rates.
Further, a small business can also acquire pre-approved offers, which make their loan-availing process hassle-free. These offers are available on various financial products such as business loans, personal loans, etc. individuals can check their pre-approved offers by providing their basic contact details.
The availability of numerous financing options helps start-up to avoid a business financial crisis. However, the same reason also confuses entrepreneurs. However, equipped with proper knowledge of these financing options (startup loans) and their business needs, entrepreneurs can choose a right funding option.