What you need to know about funding a small business

Apr 17, 2020

There are millions of people who dream of starting a small business and becoming successful entrepreneurs someday. But starting a small business and even funding a small business comes with its own set of challenges. However, it’s not impossible and there are many avenues which provide small business grants to help set up a business. Here are a few:

  1. Borrowing from family and friends:

If self-financing is not an option, the next easier option for funding a small business is to look towards close family and friends. It’s embarrassing to ask money from people close to you. You don’t want your close ones to view you as someone who’s struggling to get funding for a business. It’s also more embarrassing if the business fails and they lose their money.
So be wary of these consequences before you turn towards your family for small business grants.

  1. Crowdfunding:

It is the process of gathering small business grants from multiple sources through several online crowdfunding websites. If people like your idea, they’ll invest. It’s known to be a popular way of funding a small business. Crowdfunding requires less effort to reach out to a larger audience. You can easily market your business, get instant feedback and you have full control over your business.

Here are some things to consider:

  • You get rejected more often than accepted. While your idea may be great, others may not necessarily ascribe to it.
  • Too much competition
  • Your intellectual property might be threatened by people trying to steal ideas
  • Can’t list the same project twice if it fails the first time
  1. Venture Capitalists and Investors:

Venture capitalists (VC) are wealthy individuals or firms who invest in small businesses, claiming a private equity stake in the business. If VCs see huge growth potential in your business, they will provide you with small business grants. Your VC can provide you with substantial seed capital for starters. A VC can also provide you with business guidance and additional administrative support. Sounds great, yes?
But here are some things to be aware of:

  • You need to pitch to multiple VCs before you can convince them for funding a small business like yours. Each pitch requires extensive time and preparation. You need to be prepared for several rejections. This can be disheartening for a young, optimistic entrepreneur.
  • You may lose control of your business because of equity dilution. VCs may even claim up to 50% stake in your business. They may dictate the terms of operations and prevent you from taking bold, unconventional decisions. Too much VC interference means to lose control and the inability to fully reap the profits of your business.
  • If you don’t perform well, a VC can retract your funding after which you’re left helpless.

So when VCs consider funding a small business, a lot of terms and conditions apply.

  1. Loans – gold loans and bank loans

A bank loan may seem like the most obvious choice for someone who wants business funding.
Here are some benefits of a bank loan:

  • In many cases, banks allow you more freedom to use your funds in ways you feel are best for the business, unlike a VC who exercises more control.
  • The process is convenient and transparent because you just need to go talk to your bank to secure a loan. If your documents are fine, it’s a fairly quick process.
  • You own your profits. You don’t have to share your profits with a VC or an external borrower.
  • With a bank loan, you have lower interest rates and have the option of paying back in EMI as well. This will reduce the financial burden on you of paying back in a lump sum.

Here are some drawbacks to be aware of as well:

  • Your business may or may not qualify for a bank loan. Banks follow a strict set of criteria before they sanction business funding. If you don’t meet any of these criteria, your loan application will be rejected.
  • You may need to secure your loan against an asset. If you fail to repay on time, the bank will seize the asset.
  • You may be given small business grants in installments. This may hinder your ability to meet your larger, more urgent business needs.

So what is the ideal option to secure business funding for small businesses?

Many people have started resorting to gold loans to get funds. Companies like Rupeek have made the process extremely simple, fast and convenient. All you need to do is register for a loan on the Rupeek app or website, get your KYC documents ready and get your gold valued at home, following which Rupeek will instantly transfer the loan amount straight to your account. The bigger advantages are that there is no compounding interest and no jumping interest rates. Payment options are flexible and your gold is completely safe, stored in your nearest Rupeek partner bank.

So, the next time you’re wondering what’s the best way of going about funding a small business, a low-interest, instant gold loan is the way to go! Get in touch with Rupeek today to fund your entrepreneurial dreams!