How Do Entrepreneurs Really Finance Their Businesses?

Businesses run on money. In fact, it is the lifeblood of any business. Funding is very crucial for the success of a company. However, getting finance can be challenging whether you are a start-up or a well-established business. According to a recent study, over 94 per cent of businesses fail due to lack of funding in the very first year of their operations.

Lack of finance is a major hurdle for start-ups who do not have a strong business background, a proven track record and are in their early growth stage. In such a scenario, it might seem impossible to get funding. But these days, there are various ways to fund your business. In this article, we share with you a few financing techniques used by entrepreneurs to finance their businesses.

• Personal funds

Self-funding or bootstrapping is an effective way to infuse capital in your business, especially when you are just starting . Many entrepreneurs, particularly sole proprietors, fund their businesses themselves. They use their savings or assets to finance it. It is a wise decision to invest your own equity first before borrowing money from external sources as you don’t have to pay interest on the same. Moreover, bankers and investors consider it a sign of long-term commitment to your business.

• Borrowing from friends and family

Another easy way to start-up funding is to borrow from your close ones. It offers the flexibility of repayment, and you can borrow money at low interest rates. Often, family and friends are the most patient investors who do not demand profits; they seek principal repayment when the business reaches the maturity stage. Moreover, borrowing from family and friends builds your company’s positive balance sheet but adds to the debt.

• Crowdfunding

Another excellent source of finance is crowdfunding. It allows you to reach out to thousands of potential investors through various online platforms. Crowdfunding is akin to taking a loan or a contribution from more than one person at the same time. To attract investors, you have to pitch your business idea, mention the goals of your business, give details of the entire process and how revenues would be generated, how much funding would you require, etc. If investors approve of your idea, they are likely to invest in your business. This type of sourcing helps boost the business in the initial years and generates an audience for your company.

• Partnership

To finance your business, you can also secure a partnership. Strategic partners can benefit the business by aligning resources and bringing in required capital. It is a convenient source of finance and you only have to agree on the terms and ownership responsibilities before you infuse capital.

• Business loan

The most popular way of securing finance is by taking a entrepreneur loan in India from a bank or a financial institution such as Bajaj Finserv that offers working capital loans, machinery loan, SME and MSME loans, loans for women and various unsecured business loans to meet your firm’s growing requirements. Such lending organisations offer several loans to accommodate a variety of needs. Moreover, the process of availing a business loan is hassle-free, and you do not require any collateral to avail one.

• Angel investors 

This type of funding is most suitable for early stage start-ups who need limited funding. Angel investors are typically affluent individuals willing to invest in upcoming startups. They work in groups of networks to collectively screen the proposals before investing in them. Angel investors not only infuse capital in your business but also advise and mentor you on how to run your business successfully.

• Venture capital 

Just like angel investors, venture capitalists also provide funds to start-ups but the major difference between the two is, in venture capital, you can source funds that are more substantial. They are professionally managed funds who invest in potential businesses. Along with finance, they also bring their expertise and mentor you to conduct smooth business and achieve stability.

Bottom Line

There are a plethora of lending options to get your business off the ground. All you have to do is assess how much financial assistance you need, compare the interest rates, repayment terms and ease of obtaining finance.

If you want to scale up your operations and grow your business, you would need external funding. Self-funding and borrowing from friends and relatives can take too long to establish your business. Therefore, if you want to take advantage of market opportunities, go for external funding from banks or NBFCs. Applying for a business loan Bajaj is easy and can be done in a matter of minutes. You can also check out your pre-approved offer and save your time and efforts. Bajaj Finserv provides pre-approved offers for personal loans, home loan, business loans, and a host of other financial products to make the entire process of availing loans a hassle-free experience.