10 Sources of Finance for a New Entrepreneur in India

With business loans, entrepreneurs can address any liquidity crunch, whether for asset financing, business expansion or diversification, etc. Taking a loan also acts as a charge against profits, thus lowering the business’s tax liability.Bajaj Finserv offers loans for entrepreneurs up to Rs. 80 lakh at attractive interest rates with no collateral requirement. These loans have a hassle-free application process, and only two documents are required.

2. Owners’ Equity

Owners’ equity refers to business funds that entrepreneurs themselves provide. However, this can be risky as the business owner puts his funds on the line. Such a source may not suffice for funding. Unlike debt funding, it also increases the tax payable by the company as dividend on equity is an appropriation of profits, i.e., it doesn’t get deducted while calculating the net profits of the company on which tax liability is calculated.

3. Family And Friends

Financial support from family and friends who believe in your business idea is an informal yet flexible source of funding. It often offers more lenient terms regarding loan amounts, repayment schedules, and interest rates. However, combining financial dealings with personal relationships can lead to complications. To minimize risks and ensure a smooth arrangement, it’s crucial to maintain clear, open communication and set expectations from the outset. This helps preserve both your business and personal relationships.

4. Business Incubators

Incubators are specialised programs that support startups in growing and developing their businesses. These programs typically offer a variety of services, including office space, management training, networking opportunities, and sometimes funding. The incubation period usually lasts between four to eight months, though in some cases it can extend up to two years. To apply for an incubator program, entrepreneurs are generally required to submit a comprehensive business plan.

5. Angel Investors

Angel investors are affluent individuals seeking opportunities to invest in new businesses. Often experienced and actively involved, they tend to take a more hands-on approach than venture capitalists. However, they can also be more demanding and harder to satisfy compared to other funding sources.

To connect with an angel investor, consider attending business events where you can pitch your idea to potential backers. You can also search online for "angel investors" or "venture capitalists" in your area.

6. Government Subsidies and Grants

Many government agencies provide subsidies and grants to support new entrepreneurs. While the amount of financial assistance can vary, it can be a valuable way to help launch your business. It's important to thoroughly research the eligibility criteria and application process for these programs.

Securing a grant can be challenging, and the chances of success are often slim. However, it's still worth exploring, as grants typically do not require repayment if you're successful in obtaining one.

7. Crowdfunding

Crowdfunding has gained significant popularity as a source of business financing in recent years. By presenting your business idea to a wide audience, you can attract multiple investors who believe in your vision. To run a successful campaign, it’s important to create a compelling pitch that clearly explains your goals and offers attractive incentives to backers. Transparency and accountability are key—ensure that you follow through on any promises made to contributors. This approach not only helps raise funds but also builds a community of supporters who are invested in your business’s success.

8. Venture capital

Venture capital (VC) is a form of financing where investors provide capital to early-stage, high-potential startups in exchange for equity or ownership in the company. Typically, venture capitalists seek businesses with rapid growth potential and the ability to scale quickly. In addition to funding, VCs often offer strategic guidance, mentorship, and networking opportunities to help the startup succeed. While venture capital can fuel significant growth, it can also be highly competitive, and securing VC funding is challenging. Additionally, venture capitalists may require a significant say in business decisions, potentially diluting the founder’s control over the company.

9. Factoring

Factoring is a financing method where businesses sell their accounts receivable (invoices) to a third-party company, known as a factor, at a discount. In exchange, the business receives immediate cash, which helps improve cash flow and meet short-term financial needs. The factor then collects the full payment from the customer. This option is often used by businesses with outstanding invoices but limited access to traditional credit. While factoring provides quick access to funds, it can be expensive, as the factor typically charges fees based on the value of the invoices. It also means the business may lose some control over collections.

10. Business loans

Business loans are a common form of financing where a company borrows money from a bank, credit union, or other financial institution and agrees to repay it with interest over a set period. These loans can be used for various purposes, such as expanding operations, purchasing equipment, or managing cash flow. Business loans typically require a solid credit history, a detailed business plan, and collateral in some cases. While they offer predictable repayment terms, the application process can be lengthy and competitive. Interest rates and loan terms vary, and failing to repay the loan can result in penalties or loss of assets.

Conclusion

New entrepreneurs have access to a range of financing options. The most suitable choice will depend on your business's specific needs and your financial circumstances. It’s important to thoroughly research all available options before committing to a loan.