Running a successful business requires a vision and while everyone tends to marvel at the profits and success of a particular business, few can imagine the tremendous effort and struggle that goes into establishing it. One of the hardest aspects of running a business is to find financing- an investor should believe in the vision to put his money into a budding organization. Entrepreneurs finance their business in a number of ways these days and thanks to the growing economy, the right business will always find the right creditor.
One should remember that it is not always possible, nor is it feasible, to follow the textbook method of financing these days like venture capital, angel investing and other sources of external equity capital. While they do have their advantages, there are a number of other- more practical methods- by which entrepreneurs finance their business.
4 patterns can be seen in entrepreneurial finance:
- New businesses are lightly capitalized: Although capital is a pre- requisite to start new businesses, modern businesses, especially those that deal with technology, do not need a huge amount for their start up. Youngsters today are starting their own businesses in their father’s garage, or in their bedrooms with just their laptop. The demand for cloud based services and ecommerce has especially made this possible. Hence, big businesses are being launched with relatively less amount.
- Founders supply most of the money: Most of the time, the first big investment in the business comes from the founder’s own savings and only when the initial funds are depleted, does the need of abusiness loan Not just banks, but crowdfunding, and sometimes family and friends too come together to pool in the money. In the case of partnerships, all the parties involved fund the business with their resources.
- External Financing is more a Debt than Equity: Most of the time when financing is needed for a new company, it takes the form of a debt rather than of a equity. Either through an entrepreneur loan or some other form of a loan, the loan becomes a debt that has to be paid off or receiving an external equity investment is a lot less likely.
- External borrowing is almost always personally guaranteed: The owner of the business almost always has to be one’s own guarantor and has to provide some form of guarantee or collateral while availing financing. Today hardly a friend, or even one’s sibling, stand in as guarantors and this is mostly because no one wants to take a risk when markets are volatile. Paying for a sinking business can be risky and it could be difficult to find a guarantor.
Hence, before one embarks on starting one’s own business, it is mandatory to check one’s business loan eligibility so that just in case one is in dire need of financing, they can turn to the bank for instant financial assistance. The need can arise due to the paucity of funds while running the business and one might be in need of a working capital loan to run the day to day operations of the business. Or a business might want to upgrade and need equipment financing to buy new tools and machinery. In such cases, a business loan can save a world of trouble but has to check the eligibility criteria to get approved for the loan. NBFCs like Bajaj Finserv have Flexi Business Loans that are convenient methods to gain financing for one’s business and they offer the best interest rate in the market today.