Financing your Startup – Major Sources of Fundings
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You need money for financing your business operations. Generally there are four options from where you can get funds to run operations of your newly established business viz:


  • You already have money for your business – you must be very lucky, if this is the case with you J: Here you don’t need to think much about your finances. You only need to ensure that every paisa spent on your business is necessary, meaningful and you are simply not wasting your money. In short you have to be prudent with spending and you must have a backup plan in case things don’t go with the plan;


  • You can borrow money from your parents or relatives – You are lucky in this circumstances too. The only disadvantage with this option is that you have to pay it back one day.


  • You can borrow money from banks and financial institutions – In India banks and financial institutions generally do not provide financial support in terms of loan to startups and a new venture without obtaining any security. Security can be any immovable property, fixed deposits, receivable etc. In general banks and financial institutions insists for securities, however Govt. of India and many State Governments have come up with many schemes to provide financial support to startups, where a startups can obtain loan from banks and financial institutions without providing any security. Banks provide collateral free loan facility to startups under many schemes of government such as National Credit Guarantee Scheme, Startup India Programme, Mudra Loan etc. In general it is extremely difficult to obtain a bank loan under these schemes too, for your new business unless you are maintaining very good relationship with the Branch Manager of the bank wherein you are approaching for loan. After all this, if somehow, you manage to get loan from a bank, you have to pay it back someday with interest. So you need to do some negotiations on interest rates, pay- back period, pre-payment charges, security etc. To apply for a loan, you will need a comprehensive business plan, your KYC documents, your financials and Income Tax returns etc. can help you in preparing loan documentation including writing a perfect and comprehensive business plan for your startup.


  • Seed Funding – Investment from Angel Investors and Venture Capital Funds: Here you will have to dilute your equity holding and investors will be guiding you at every step, which will ultimately help you grow faster. This is simply exchange of money against the equity shares of your company. Before you begin, you must consider few things such as how much equity you will be actually diluting, is your business structure is appropriate for receiving investment? Private Limited Companies are most appropriate structure for receiving money from angel investors and venture capital funds. You should also ensure that you control the majority of shareholders, as there is a risk of you being out-voted from your own Company by the investors, if they are not professional investors, Venture Capital Firms and Angel Investors. Here you need to learn from the Rahul Yadav episode of So you need to vigilant and careful.


No matter from where money for your business is coming, you need to be extra careful before you put too much money into your business so quickly. It’s obvious that everyone wants to grow fast, but you need to ensure that you money is properly spent and your business is generating reasonable return on your investment.


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