Depending upon the nature of your business, you have several options of raising the necessary capital. One of them, a small business loan, can help you finance your goals, but you might have trouble getting one if your venture is in its early stages.
Did you know that bankers lend on the five Cs of credit: character, collateral, cash flow, credit, and conditions? To make sure that you are never denied an SME loan ensure that you do not have one of the following:
- Bad credit or no credit
- Lack of collateral
- Weak cash flow
- Lack of preparation
- Seeking small loans
- Risk-averse banks
Once you have the above in place, consider the following funding sources to finance your SME India dreams:
#1 Your own credit facility
Banking overdraft protection is a quick and easy way to arrange an overdraft SME loan option with your bank. Here you pay interest on the money you actually use and foreclosures happen without any penalty.
However, in case you exceed your overdraft limit, the fee can be steep. Also, support from the bank can be withdrawn in case of a miss from your end. Consider these factors before contemplating this form of funding.
#2 Attracting investors
When an external investors gambles on the possibility of your business being profitable, you are free from repaying any investment made by him.
A share of your business will be handed over to the investor in return, only after he has seen a business plan (expenditure and projected income included) and is excited about it. However, think carefully before parting ways with a part of ownership of your business.
#3 Business loans
If you wish to retain 100% ownership of your business, apply for an SME loan and borrow money for a specific period of time, at a pre-decided rate of interest. Yes, you may have to secure such a loan using one of your assets and risk losing it in case of failure of payment. Assess all the pros and cons before deciding to opt for a loan of this nature.
#4 Small business credit cards
There is never a dearth of major business credit cards, making offers to small business, to use their services in order to sustain their business. To ensure a smooth cash flow, to buy inventory or to deal with unforeseen expenses, using your small business credit card is a good idea as long as you clear debts every month.
Compare companies to assess the best rates being offered; switch if you get a better rates and privileges; and make payments on time.
#5 Get a grant
The application process is very lengthy and you may be asked to provide some project funding as well. But if you get one, neither will you have to return the money and nor will you have to part with a share of your business.
Crowdfunding is a great alternative of funding a venture by raising small amounts of money from a large number of people, typically via the Internet. The advantage of this source of funding is that it can be done without giving up equity or accumulating debt.
Plenty of networking is essential to make this work. If you wish to explore this route, opt for reward-based crowdfunding platforms that allow entrepreneurs to raise funds from the community in exchange of tangible products or other relative gifts.
Not only does such a model validate your project, but it also works as a great marketing tool.
However, some sites require you to reach the full funding target or you don’t get any money; so be aware of that when choosing this route.
To make your business creditworthy for investors, do your groundwork before you apply for a loan. This way you will be prepared for all eventualities and, unlike many others before you, your small business will not be turned down.