4 ways to finance your small business

As a business owner, you must ensure that your operations are on track and that you are taking all the measures you need to in order to boost productivity. This will also allow you to operate at optimal levels and maximise your profitability. In order to turn this approach into reality, you must secure the right forms of finance. Take a look at five options that will help you finance the needs of your small business.

Venture capital

If you have recently set up your business, venture capital is an excellent source of finance. This is especially relevant if you don’t qualify for a business loan yet. As long as your business has growth potential, you can seek a large sum of finance through this method in exchange for equity. Venture capitalists also help you take important decisions regarding the functioning of your business and the direction in which it is headed.

For example, if you are setting up a business that manufactures and sells ready-to-assemble furniture, you may need a large amount of money to set up your manufacturing unit and source wood, L brackets, screws, nails, clamps and hinges. Here, a venture capitalist can give you a lump sum of money to deal with all set-up costs — from sourcing your inventory and buying the right machinery to hiring skilled staff to manufacture furniture. The venture capitalist may even help you hire the right people, like furniture designers, for the job. Usually, venture capitalists expect an ROI (return on investment) on their investment after a few months of operation. For example, assume that you receive Rs. 50 lakh to start your business, and the terms dictate that your venture capitalist will get 20% ROI. Then, he/she can choose to take Rs. 60 lakh and exit after a year, if he/she feels the need to.

Bootstrapping

If you don’t want to rely on conventional forms of credit, you can take to bootstrapping to finance your small business’ needs. Bootstrapping means not relying on external credit to fund your business. To bootstrap, you can use your personal savings to get your business off the ground. You can also choose to work a part-time job or work as a consultant to raise funds. Although this is a slow process, it is an effective method of raising finance if you don’t to take on a partner or invite angel investors to finance your work. Another way to bootstrap operations of your business is to invite customers to pre-order a particular product. So, for example, if you want to launch a ready-to-assemble console table but you don’t have funds to run a manufacturing cycle, you can accept pre-orders for it on your website. Provided you have the raw material and design, these funds will help you put together the cost for manufacturing the product.

SME loans

If you need a large sum of money and you want the funds quickly, applying for an SME business loan is your best option. These loans offer a large amount of credit at a nominal rate of interest and along with flexible tenor. They are unsecured, so you don’t need to pledge personal or business assets as security. You can use these funds for a range of purposes without any restrictions. For example, if you want to create a new range of lightweight side tables, you can use funds from this loan to finance all the steps of production, right from designing the collection to procuring the raw material and distributing the final product. Use a business loan from Bajaj Finserv to get the added benefit of a Flexi loan facility. This gives you the option to withdraw a part of the total loan amount. You can then withdraw more funds as and when the need arises. The best part is that you only have to pay interest on the amount of the loan that you actually use. The rest of the amount is available to you for the duration of the tenor and will be eligible for interest payment as and when you use it. Besides, you also have the option of paying only the interest as EMIs. If you have an urgent need for finance, you can use this option to keep costs low. You can pay interest-only EMIs and choose to repay the principal at the end of the tenor. Also, the business loan from Bajaj Finserv also has convenient prepayment terms. This means that you can lower your financial burden as and when your business has a surplus of cash.

Government grants and schemes

If you are a start-up with minimal experience, you can also take advantage of government grants and schemes tailored for you to generate finance. In India, there are over 50 government schemes designed specially to help small businesses like yours. Schemes such as 4E (End to End Energy Efficiency), Pradhan Mantri Mudra Yojana (PMMY) and Stand Up India can help you finance your business. With these 4 options at your disposal, financing your small business isn’t an uphill task. Depending on your end goal and revenue projections, pick a source of finance that suits your needs best.