What are the different types of funding for Indian startups?

What are the different types of funding for Indian startups?

Finance & Accounting

Vakilsearch Staff

Vakilsearch Staff

19 Jul 2019, 17:11 — 7 min read

Background: A lot of startups business get confused when it comes to choosing the right kind of funding options to finance their startup. With the numerous alternatives available, picking the perfect source of financing can be overwhelming. In their previous article, Vakilsearch shared the 11 new features of GSTN. Here they list out the various funding options available to startups, along with their pros and cons.

Many startups get confused to select the right type of funding options to continue their business operations. With many choices available in the industry, it is important to choose the right funding to help meet your requirements. Of these, crowdfunding, angel investors, venture capital and bank loans are the common options you can consider.

Recorded underneath are some basic funding sources, with a concise clarification of each that will help improve fixing your problem.

  1. Personal Savings

 This is the most engaging source of financing since you utilise your very own cash to kick off your business and do not owe any other person in the course.

Upsides:

  • You have absolute control of your business, and you may do however you see fit your capital.
  • There’s this fulfilment that you are utilising your own money to support the business.

Downsides:

  • On the off chance that the business bombs, all the diligent work that you had put into your reserve funds will fritter away.
  • You may fail to see the generally significant supervision and guidance from angel investors and venture capitalists.

  1. Family and friends

You can ask your companions, family or close contacts to help finance your business. This sort of subsidising has more to do with the relationship itself, as opposed to the appraisal of a viable marketable strategy. The point of this sort of subsidizing is to help kick off a business to a point where it can look for and get different sort of financing.

Upsides:

Quicker financing procedure and adaptable reimbursement approach.

Downsides:

  • Family and companions offer to finance without evaluating the suitability of a business strategy.
  • Brings no profit in return apart from the initial investment.

Also read: 6 tips to improve the financial health of your business

  1. Crowdfunding

This includes financing a business by taking little measures of capital from an enormous number of individuals, generally by means of the internet. This kind of financing utilises the immense network you have from your family, friends, and other contacts by means of various social media platform to let people know about the business, with the objective of pulling in new investors.

Upsides:

Has the capability of extending a business by getting a pool of investors who can help raise capital.

Downsides:

This procedure commands time and devotion before results might be figured it out.

  1. Angel Investors

Angel investors are well off people who will help fund your business in return to a share of rights in the business. A few investors work in groups and screen bargains jointly before giving assets, while most work without anyone else.

Upsides:

  • Angel investors can propose profitable recommendation and assistance because they have knowledge in the business you are in.
  • Adjustable business terms.

Downsides:

You might be compelled to surrender control of your business to some level.

  1. Venture Capital

Venture capitalists are sponsorer who put in a lot of cash in return for value in the business and get returns when the business opens up to the world or is procured by another organisation. These investors are all about the capital and put resources into organisations with the sole motive that the organisation they invested has the capability of giving great profits for their speculation.

 Upsides:

  • Venture capitalists offer investment, yet can offer mastery and mentorship to help build up the business.
  • Venture capital funding provides the business quick validity and opens different ways to a wide system of significant people, for example, future financial specialists and business partners.

Downsides:

You might be compelled to surrender an enormous lump of your business because of the critical measure of funding endowed with.

Also read: 5 tips for SMEs to plan a financial strategy

 

  1. Bank Loans

Bank loans are a well-known funding source for some new companies. Before applying for a bank loan, guarantee that you are accomplished about the different alternatives accessible, and the financing costs that accompany every choice.

Upsides:

  • Availability of various govt business funding schemes and programmes.
  • There are distinctive financing alternatives relying upon your necessities.
  • The financing procedure is moderately fast in the event that you qualify.
  • You do not need to surrender control of your business.

Downsides:

  • Requires a great deal of documentation, which can be tiring and tedious.
  • Be well-informed about the best alternative accessible for you; else, you may finish up picking an arrangement that will inevitably hurt your business.
  • The invested money must be paid back whether the business succeeds or not, coming up short which may prompt loss of your advantages, assuming any.

  1. Small Business Administration (SBA) Loans

This includes financing from a government organisation committed to helping private ventures to succeed. SBA’s assist independent ventures get capital and guarantees that a specific level of agreements is granted to the private ventures.

Upsides:

  • Improves the connection between banks and borrowers.
  • Greater chances of acquiring a bank loan if the SBA loan is appropriately overseen.

 

Downsides:

Stringent qualification procedures

To enable you to pick the perfect funding source for your business, try to survey your monetary needs, capabilities, and the methodicalness of financing. Some financing sources need certain necessities to be done before you qualify. It’s therefore imperative to guarantee you are accomplished on the different choices accessible to you, and their individual favorable circumstances and impediments.

 

Also read: The big business potential

 

Image courtesy: Shutterstock.com

 

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Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views, official policy or position of GlobalLinker.  

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Vakilsearch Staff

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