Financing small businesses: Tips for SMEs

If your excellent business idea is hampered by a lack of funds, these tips to raise capital will help you go a long way.

India is currently witnessing a burgeoning start-up culture that is making millionaires out of some business owners. The best ideas are not just becoming successful domestically, they are also generating huge funding from foreign investors. At the same time, several other small businesses are waiting to see the light of day owing to lack of capital. If your business is one of the latter, you need to consider these:

1 Borrow from friends and family. The best way to raise capital for your fledgling business is to borrow money from your family and friends. These people are less likely to hound you to return their money and will be glad to finance your business. You can start operations with this sum of money and make a plan for repayment.

2 Get a strategic partner. If your business needs to go to the next stage of operations but you do not have the funds to make it happen, get a partner who will pump in the money for a share of the profits. This arrangement works best for those businesses that have definite business prospects in the coming days, and which know the potential partner’s risk appetite and strategic thinking.

3 Get loans. Several banks and financial institutions these days are extending SME loans in India. These help fund businesses to expand their operations, buy essential machinery and manpower, open new centres or even pitch for a large contract currently outside their means. SME loans in India are also extended by angel investors and venture capitalists, who buy into the business in return for their investment. All of these avenues are worth exploring if you require immediate funding, provided your business prospects are sound and you do not have existing liabilities.

4 Get crowdfunding. Crowdfunding is the best way to raise finances – and also generate a buzz – for your business. You can sign up with a popular crowdfunding platform and make a pitch for money by explaining your business’ key attributes and why people should invest in it. In return for people’s money, your company can give them freebies for a certain period of time, or give them a small buy-in or even forge partnerships for large donations.

5 Let the business generate money. Some SMEs simply start operations using their own money and wait for the business to start generating an income. This is a good way to keep all liabilities at bay, but it works best only if the business starts generating revenues soon and does not have too many overheads. This method is best suited to home-based businesses that require little more than a desk and an Internet-enabled computer.

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Author: Eddy

Eddy is the editorial columnist in Business Fundas, and oversees partner relationships. He posts articles of partners on various topics related to strategy, marketing, supply chain, technology management, social media, e-business, finance, economics and operations management. The articles posted are copyrighted under a Creative Commons unported license 4.0. To contact him, please direct your emails to editor.webposts@gmail.com.