Published on Sept 9, 2022Updated on Sept 10, 2026
Once you begin a business, you need to constantly sustain it and earn profits for the same. You can easily begin a bootstrap company; it means investing personal capital. Although growing a business with just an initial capital investment is not possible. Just as you need to oil a machine to work, you need to invest more capital for a business to run.
Just as profit is the primary motive of almost all business organizations, capital is the priority requirement of the same. If you wish to expand your business and take it to the next level, you will need the right kind of financing to support your ideas and plans. In today’s start-up culture, many such modes are being introduced. The 2 most common ways that businesses raise capital are through either business loans or leveraging equity financing options. Let us understand them.
A business loan is considered to be a debt financing mode of raising capital. In this mode, you take up loans from financial institutions such as banks or non-banking financial companies (NBFC), etc. Here there are 2 parties – borrower and lender. Depending on the amount you need, your eligibility and the lender’s policy, business loans can be secured or unsecured. Secured loans are obtained when you pledge assets such as immovable property (loan against property) or financial assets (fixed deposits - overdraft facility, market linked instruments - loan against securities) as collateral.
Unsecured business loans are obtained based on factors such as the borrower’s creditworthiness, business profitability, stability of income, etc. - usually upto a maximum of INR 1 Crore*. It is the most simple and popular way of raising money. The positive angle of borrowing a business loan is that you need not give up control over your business to the lender or part ways with your equity. You will continue to be the sole owner & decision maker of the business.
The other popular mode of raising capital is equity financing. Here, you can raise capital but in exchange for the same, you need to provide ownership rights to the lenders. Equity financing can be done through Venture Capitalists (VCs), angel investors, Private Equity (PE), and other modes. A company in the growth stage can raise money through this mode. The financiers or investors have a say in the business matters and need to be aware of what is going on in the company. As the business grows, so does its value, and thereby the return on equity for its investors. In case the business fails, the investors have the right to sell off the business and/or its assets in order to recover their losses. Depending on the quantum of equity funded, the investors also have the right to take part in decision making in terms of business operations and management.
Must Read: Here You Can Know About Business Finance
As we have an overview of the 2 main modes of financing for a business, let us understand which is better and which one will suit your business.
Both the options have their pros and cons, thus making an informed decision is crucial. After overlooking the above factors, you may choose which option is most suitable for your business and works in your best interest.
SMFG India Credit provides eligible borrowers unsecured business loans upto INR 1 Crore* at attractive interest rates and tenures upto 60 months. You can also check our secured lending products such as loan against property and loan against securities. Apply today or visit your nearest branch to know more.
Important Note: This article is for general informational purposes only and may be subject to change from time to time. As product features, eligibility criteria, interest rates, charges, fees, tenures and other terms may be revised as per SMFG India Credit's policies, readers are advised to refer to the latest details from the respective product pages (please select from the top menu). For the latest loan charges, please visit Charges & Fees Link and for the latest Interest rates, please visit Interest Rate Rationale. Please note that final loan terms, disbursement process and eligibility criteria will depend on SMFG India Credit's policies at the time of loan application.
The content of this article is for information purposes only and does not constitute as, an offer or advise to avail any products or services from, or, a commitment to grant any loan by the company. It is not intended to create any rights or obligations against us. All content is provided "as is" without any warranty of any kind, either express or implied & we disclaim any warranty or representation, whatsoever, in regards to the content. Please refer to the Privacy Policy of the company to understand the use, processing and storage of your personal data.
Was this helpful?
Insurance disclaimer SMICC is registered with the Insurance Regulatory and Development Authority of India (IRDAI) as a Corporate Agent. IRDAI Registration No.: [CA0098] CIN No. U65191TN1994PLC079235. The insurance policy is a contract between the customer and the insurance company, and policy is underwritten by insurance companies. SMICC acts only as the distributor and is not responsible for any risk, policy issuance, claim settlement/repudiation etc. Insurance is the subject matter of solicitation. Purchase of insurance is voluntary and subject to insurer underwriting and policy terms and conditions. Customers are advised to read the policy terms and conditions, benefits, exclusions, claim settlement carefully before purchase. Kindly note that “Insurance Products” are not mandatory for the purpose of the application and disbursement of loan. It shall be the sole discretion of the customer, by providing explicit consent, to avail such insurance along with the Loan.
Beware of Spurious calls/ Fraud phone calls IRDAI is not involved in activities like selling Insurance policies, announcing bonus or investment of premium. Public receiving such phone calls are requested to lodge a police complaint.
