How to Finance a Startup Business 2021

Topic – How To Finance A Startup Business? | 2021-22

Since you are reading this, it is safe to assume that you are among the 83% of the Indian population who dream of being an entrepreneur, ready for a revolution. But for this prospective revolution, you need the fuel, in this case, capital for funding your business.

Did you know that 94% of the start-up businesses struggle on the very verge, during their first year of operation? Why, because they didn’t know how to finance a start-up business, or even worse, they chose a wrong road. So here are some roads that are taken, some seldom taken and some rarely taken (not even known) to help the businessman Robert Frost in you to not only plant the seeds of your dream but also to cultivate its harvest:

Let us start by assuming the worst as this is the case for a lot of us.

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How to finance a business with NO money

Angel investors

Sources of finance for small business doesn’t end here, in fact, the angels will guide you. No, literally. Angel investors are well, let’s say wealthy people who have an interest in new businesses in which they can invest, mostly by acquiring shares or assets of your company. But no human is perfect, not even angels; so a solid plan that gets their long-term interest is quite needed for this. Otherwise, they may leave you when they think they have better options.

Crowdfunding

Crowdfunding, also known as cloud funding, has become a gen-Z way of business funding for start-ups. Simply put, you upload a detailed description of your business, future prospects and how the product/service looks and works; trying to gain the attention of consumers online, who might be willing to fund your idea.

Another use of these platforms is how they will help you understand if the market really is excited about your idea, or if you should work more on it. Some of the most thriving crowdfunding platforms in the country right now are Indiegogo, Wishberry, KettoFundlined and Catapooolt.

Startup pitch competitions and programs

Remember Shark Tank? Not that dramatic or extra, but India has a lot of contests dedicated to finding the next best thing in business. NASSCOM’s 10000 startupsMicrosoft BizSparksConquestNextBigIdea Contest, and Lets Ignite are just a few examples, where all you need is a solid plan and a confident voice.


Now let us get real and talk about how to finance a start-up business, given that you have a rock-solid plan and the initial monetary push. Of course, the above options are for you too.

Government schemes for startups

Small businesses as we all know, are seeing their greatest rise and the Government is seeing it too:

Pradhan Mantri Mudra Yojana

The Pradhan Mantri MUDRA (Pradhan Mantri Micro Units Development and Refinance Agency Limited) Yojana was launched by prime minister Shri. Narendra Modi on 8th April 2015, to fund small businesses in three categories:

  • Micro business – Shishu stage, offering loans upto ₹ 50,000
  • Small business – Kishore stage, offering loans from ₹ 50,000 – 5,00,000
  • Medium business – Tarun stage, offering loans from ₹ 5,00,000 – 10,00,000

With an initial corpus of ₹ 20,000 crores, I would suggest you run for MUDRA as fast as your feet can take you.

Startup India initiative

The Department of Promotion of Industry and Internal Trade has started the START-UP INDIA initiative.

It transforms the lives of many entrepreneurs by supporting them with various programs, awards, donations and of course and economic stimulus in the form of ₹ 10,000 crores managed by the Small Industries Development Bank of India with the goal of increasing funding opportunities.

MSME pandemic schemes

The Ministry of Micro, Small and Medium enterprises has announced various small business grants after the pandemic hit.

It includes collateral-free loans with a total investment of five lakh crore rupees. Furthermore, it includes ₹ 50,000 lakhs worth equity infusion for a small business that lacks funding.


Bank loan for startup business

Well, apart from the government, banks are also taking note of this upward curve in the graph of ‘getting equipment loans for startup business. Consequently, have decided to get into the game.

Almost all nationalized banks offer different options for entrepreneurs who are in search of the ‘green fuel’ for businesses. Following are a few types of loans you can get from banks:

Working capital loans

This is the usual type where you get your loan amount after submitting the documents. You use that money to carry your business on, you get your returns, you pay the money with interest back. 

Finance a startup business through Funding

It is similar to angel funding, the only difference being, the angels are the banks. They hear your pitch and analyze if it is worth funding your business and you get your money accordingly. 

Partnership

On contrary to the above-mentioned types, the partnership generally involves a tie-up between the startup and a bank. In short, the business startup provides some service to the bank and in return gets funded to aid the business.

Some banks like HDFC to name one, have gone the extra mile to make alliances with startups. They not only provide sources of finance for small businesses but also give them intellectual help.

SmartUp by HDFC helps individuals and companies plan out their journey right from the incubation, to enlisting in the Bombay Stock Exchange, apart from other business services.

This shows how important a partnership deal has become in today’s economical scene.


Now that we have covered the roads that are ‘so often taken that they have potholes’, here are some less popular answers to your question

How to finance a startup business using unconventional methods

Bootstrapping

Who tightens the straps of your boots? You do (come on, do not tell me you have people for that.) There you go, bootstrapping is a form of business funding for start-ups where you find the capital yourself. It could be with the help of your friends and family, ancestral properties or from colleagues, and basically, people who believe in you.

As basic as it sounds, it does have its unique perks: an utmost form of a sole proprietorship. You will be in charge of your business, and obviously the profit or loss it creates. It will also help you control your unnecessary expenses also showing you the expenses which are unnecessary. A very good option for everyone who is just starting their start-up journey.

Presales

Pre-selling your products to customers who trust in the quality of your product/services helps tremendously; it increases cash flow and manages to fund till the profits arrive. Giant companies like Apple apply this method very often with their gadgets, especially taking advantage of their brand value.

Startup incubator

Let us assume start-ups are premature babies, and of course, premature babies need their nurses, to feed them, help them grow and incubate them. These nurses are called incubators who do the same for the entrepreneur baby in you by helping you solve problems related to workspace, seed funding, mentoring, recruiting, training and many many more.

The best part is how popular this concept is becoming in today’s age making it easy to finance a startup business by finding the right incubator. Some of the leading incubators of the country are iCreate, Prime Venture Partners, Indian Angel Network, Villgro etc.

Venture Capital

If your company has gone through the ‘one year’ of hurdles and hardships and is financially stable, just looking for expanding your growth, Venture Capital might be the best financial option for your start-up. They are also like the angels we talked about, just richer angels guarding the richer companies.

Very similar to angel investors, they have short periods of interest and are always seeking for more profitable companies to invest in, and apart from that, they might have control over the company, sharing, in some cases, denying your ideas for your company.


“Chase the vision, not the money, the money will end up following you.”

When the co-founder of Zappos, Tony Hsieh said the above line, he did not mean you shouldn’t have clicked on this article. He just meant your idea is the most important resource of your business. Even if you are lucky enough to accumulate funding for a business that is not built on a strong base, it would not help you in the long term. Especially now that people are appreciating the need for self-employment and self-reliance, creativity and out-of-the-box ideas are back in town and business funding for start-ups is the talk of that town.

As much as understanding how to finance a startup business is important, the answer is actually quite simple; have an idea that sells. What type of business is best to get financed? A business idea that sells. There are classic ideas, the ones that never lose their relevance; and there are business ideas that evolve with the changing trends of today. Trends make them fast bucks, but the company becomes a household name when they take a trend and make it a classic.

1 thought on “How to Finance a Startup Business 2021”

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