Funding options for Startups- ways a startup can get funded

What do we need to start our own venture? What's the primary requirement? As soon as we start enacting our startup notion, we need funds. No fund means no business. If an entrepreneur has his own funds then that's a superlative thing. But that's not the case often seen.

Organising funds can be the most complex challenge in the life of the founder. Let's enlighten some of the funding options these founders have...

# Bank loans

 Startups can get funds as debt from Banks whether private or public for all the materialistic things required at the beginning along with funds for operations and growth too. These Banks don't seek equity in your business. But advantages come at some cost. You need to pay the amount at fixed time with interest irrespective of the status of your business. Banks also need a lot of documentation and clean track record.

# External Commercial Borrowing (ECB)

ECB is commonly used in India to avail funds from foreign financial corporations and banks to the local corporates and even public sector undertakings. Finance Ministry has a separate department which along with the RBI regulates ECB guidelines and policies. Only 25 percent of the borrowed sum can be used to repay debts and remaining 75 percent has to be used for new projects. ECB interest rates are nearly zero.  

# CGTMSE loans

The government of India is encouraging entrepreneurship in the country. A credit guarantee trust for micro and small enterprises has been set up by the government of India to support budding and existing startups. Existing or new micro or small venture can get a loan up to a crore without any surety or mortgage. Some scheduled commercial banks, Regional Rural Banks, NSIC, NEDFI, and SIDBI  have signed up to support the cause.

# Private Equity (PE)

Private equity is an investment which is not included in the public exchange in the stock market of a particular venture. PE is a fund that is directly invested in a private company by private equity firms or high net worth individuals. This fund has to be returned within 10 years with handsome profits. The fund is provided to scale a venture or to acquire other existing venture.

# Angel Investors

Sometimes an individual or a group acknowledges the potential of a startup and funds it in return of some equity shares in the company. These investors are said to be Angel Investors. They fund a business only when they are quite certain about the success of it and intend to gross profit from the company in return for the sum they invest in the company. These types of investment are regulated by SEBI.

# Initial Public Offerings (IPO)

Once a company is stable, it offers normal civilians to buy equity stakes in the company. Thus the company has a number of shareholders sharing the profit on the basis of the percentage of shares they own. Thus a company raises funds for the further growth and scaling. 

# Crowd Funding

This is the very recent practice to raise initial funds for the startups. Entrepreneurs showcase their idea of the venture on a suitable online portal explaining the utility and potential of the idea. People who can foresee the future success of the venture are asked very small amounts as the investment and they get some rewards and returns when the company does well. Thus the company has a broad investor base.

# Incubators

These can be government-supported institutes, technical institutes, and private business incubators. Incubators help an entrepreneur develop an idea or a blueprint of a venture by funding them in exchange for an equity ranging from 2 to 10 percent. They even offer office space, administrative support, legal compliances, management training, mentoring and access to industry experts as well as to funding through angel investors or VCs.​​

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Comment by Sanjay Shintre on September 28, 2016 at 8:53am

very informative and great article.... varun.

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