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Top 14 Options to Raise Funds for Business in India

Published on Oct 5, 2021Updated on Jan 16, 2024

Top 14 Options to Raise Funds for Business in India

Whether you are a start-up idea, a serial entrepreneur or a seasoned businessman, every venture needs an infusion of funds at the launch phase and during various operational stages. Even though many businesses are bootstrapped, to begin with, there is a constant need for funds to meet the needs of the venture.

How to Raise Funds for Business in India?

Be it meeting working capital requirements, investing in office space or equipment, hiring manpower or more, every aspect of running the business demands influx of funds at regular intervals. Unless you have won a lottery or have a fairy godmother to bank on, how can you raise funds for your business?

Here are our top 14 recommendations:

1. Angel Investors

Angel investments are a popular funding choice for many start-up ventures. Generally, angel investors operate independently and sometimes as part of a larger investment group or a syndicate.

Having said that, angel investment is not really equivalent to a typical business loan that creates an obligation on the borrower to repay it within a specified period of time. Angel investors are risk-takers and have a long-term view of creating value for the venture by banking on the business instead.

In most cases, they request an equity share of the business and expect to earn high returns. Therefore, they provide more than just monetary assistance. In addition to finance, angel investors often share their business expertise to ensure that the venture is a success.

2. Crowdfunding and Cloud Funding

Finding angel investors can be Difficult and time consuming. Hence, crowdfunding and cloud funding are becoming increasingly common among entrepreneurs to gather financing for their business in India. As long as you have your legal compliances in place, you are free to float your idea, business plan, or company requirements enabling any potential investor to participate in its growth through mediums like crowdfunding and cloud funding.

Unlike a business loan, there is no need for the entrepreneur or the businessman to use a business loan emi calculator to ascertain your monthly repayments to the lender. Generally, the investor chooses to contribute a sum of money that is aligned to their affordability. Since the playing field for the group of investors is open to all, this helps the business raise the required funds for their venture in no time at all.

Must Read: 5 Best Trading Business Ideas in India with Low Investment

3. Equipment or Machinery Loans:

If your business is into manufacturing, then equipment or machinery loans will be more attuned towards fulfilling your needs for raising funds. Machinery and Equipment loans are designed to provide quick and convenient access to finance to cater to the asset needs of small-scale enterprises in the country.

This type of loan is best suited to purchase business equipment to transform their production processes and make them more efficient. Manufacturing businesses also rely on these loan types to help fund their repair work for faulty equipment and even to purchase modern, upgraded machinery.

You can easily get a Machinery or Equipment loan from SMFG India Credit that ensures that you suffer no major roadblocks to your business growth. Applicants can simply use our business loan eligibility calculator to estimate the maximum amount they can get. They can also check our business loan eligibility criteria to know if they meet the basic required parameters.

4. Bank Overdraft:

If you have a great relationship with your bank, you may be able to avail of a bank overdraft facility that is best designed to meet your short-term funding needs for your business. Only the crème de la crème of the bank’s customers is able to avail of the overdraft facility which is directly dependent on having a good credit score. Making regular repayments to the bank also helps influence the lender’s decision of extending the overdraft facility to a select few businesses.

The overdraft facility is enabled by the bank on an annual basis. Hence, you will have to request a renewal of the overdraft facility on a yearly cycle with your respective banking partner.

Having access to an overdraft facility enables you to withdraw funds up to a specified limit from the bank account even if the total funds are not available in your current account at that very point in time. This fund extension facility is extremely handy for businesses especially to meet day to day expenses of the business such as wage or vendor payments.

5. Business Loan:

A business loan can be availed by business owners to meet high-value expenditures directed towards expanding operations, meet working capital requirements, investing in upgraded machinery or equipment, purchasing raw material or stocking inventory, financing infrastructural changes, hiring manpower and more.

Business loans are of two types. Unsecured business loans do not require pledging any collateral and come with higher interest rates whereas secured loans require the applicant to pledge an asset such as immovable property.

Must Read: How to Apply for a Business Loan Online? (Step by Step Guide)

SMFG India Credit offers convenient and hassle-free unsecured business loans with minimal documentation. Startups can avail of a business loan between Rs 50 Thousand to Rs 75 Lakhs* at competitive interest rates

6. Self-Finance:

Self-finance and personal investment are interchangeably used. Several businesses and startups use this method to fund their businesses.

During the initial phase of your startup, when you opt for a loan from a capitalist or lending institution, they often ask you about the investment you will make in your own startup. For entrepreneurs heading to start their businesses, self-finance is the best way to begin. When your business grows and you are able to meet the required business loan eligibility criteria, reach out for business loans to lenders who may consider your application.

7. Government Schemes:

Startups can now benefit from the various loan schemes rolled out by the Government of India. These schemes are incredibly beneficial for start-ups, MSMEs, and SMEs. Furthermore, women entrepreneurs, individuals belonging to the SC/ST category, and educated youth also yield the benefit. The MUDRA loan scheme under Pradhan Mantri Mudra Yojana, Credit Guarantee Fund Trust for SMEs, Atal Innovation Mission, TREAD, Make in India, etc., are some of the loan schemes by the Government of India for startups.

8. Peer-to-Peer Lending:

Peer-to-Peer lending is also a very commonly used method for gathering business capital. In this process, third-party involvement is negligible. Lenders directly lend money to borrowers, which they further invest in start-ups. Please note that this product is currently not being offered by SMFG India Credit. However, if you wish to borrow money so that you can invest in a start-up, you may consider a personal loan.

Lenders directly earn from the borrowers since the rate of interest charged is exceptionally high compared to NBFCs and MFIs. RBI regulates peer-to-peer lending for both lenders and borrowers to benefit equally.

9. Loans from NBFCs (Non-Banking Financial Institutions)

Like traditional banks, Non-Banking Financial Companies (NBFCs) are a popular choice for startup loans due to several advantages. They have more lenient requirements compared to banks. The loan application process is quicker and involves less paperwork. On the contrary, NBFC loans typically have higher interest rates, making them more expensive for startups, especially during the initial stages when they may have limited finances.

10. Loans from Micro Financiers

Micro-financers work similarly to NBFCs and provide microcredit services. Though they don’t charge interest rates as high as NBFCs, the amount of financing available from these entities is significantly lower. Therefore, only small loans are available.

11. Startup Incubator

As the name suggests, incubators are the go-to place if you are a startup looking for step-by-step guidance in its early stages.

Nationwide incubator programs provide guidance and networking opportunities for securing funding and partnering with renowned educational institutions and industries.

However, accessing this valuable support can prove challenging for rural or smaller city startups.

12. Venture Capitalist

Venture capital firms are crucial in fueling startups' success, providing vital financial resources and valuable experience from professionals and veterans in the industry.

While angel investors also offer funding, venture capitalists go further by offering strategic guidance for growth. However, their focus tends to be on supporting startups in the growth phase, which limits their assistance to those in the early stages of development.

13. Reach out to Friends and Family

Raising funds from friends and family is a popular option among entrepreneurs, but it can be a tricky area to navigate. While your loved ones may share your enthusiasm for your business, there is also the risk of misunderstandings and legal issues arising from the lack of formal documentation.

Therefore, it is crucial to be transparent with your family member or friend who is willing to invest in your venture and provide them with all the necessary information to build their trust. This type of funding usually comes without interest or legal disputes, but it is important to be responsible and repay your debts on time.

14. IPO (Initial Public Offer)

An Initial Public Offering (IPO) involves a private company making its shares available to the public for the first time, giving investors the chance to own a portion of the company. This is typically seen as the last resort for startups to obtain funding, involving a multitude of detailed procedures and legal protocols before shares can be offered to the public. While IPOs typically favour startups with a successful and profitable history, the process itself is intricate, time-consuming, and requires specialized legal knowledge.

Conclusion

In entrepreneurship, securing funds is often a crucial step towards turning business dreams into reality. While there are numerous avenues to explore, it's essential to choose the right path aligned with your business's unique needs. SMFG India Credit stands as a reliable partner in your financial endeavors. Our business loans are designed to empower businesses, offering financial solutions tailored to your specific needs.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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