Monday, June 10

How to finance your Business

One of the most important aspect of starting your own firm is to have enough funds to finance the business. You may not always have the capital to start a business, but fortunately there are other alternatives to finance the business.

Loans from Banks / NBFCs
Most banks and non banking finance companies (NBFCs) provide loans to small and medium enterprises (SMEs). The tenure ranges from 6 months to 5 years while the interest rates range between 10% and 15%.
In most cases, banks and NBFCs expect you to show continuity of the business for a couple of years before funding it.

Venture Debt
Venture Debts are medium term loans offered by venture capital firms and do not require collateral. A start up is evaluated based on its ability to grow, fundamental enterprise value. The venture capital firms peg the value of the firm to its future cash flows and the ability to repay the loans.
Leverage is not a great way to start a business so this option is better avoided or should be considered as a last option.

Angel Investors
Angel Investors are high net worth individuals who invest in a start up in return for a minority share in the business. Investor angels typically come int the picture at the seed stage when the business idea is just a concept. These investors stay invested in the business for 5 - 7 years and even help developing it.

Venture capitalists
Venture capitalists are similar to angel investors as they invest their shareholders' money in start-up in return for a minority share. Difference from an angel investor is that Venture capitalists are institutional investors and are seldom interested in early-stage financing unless there are compelling reasons. 

1 comment:

  1. Thank you for sharing your post.But first thing first is to start a prerequisite business courses.But of course,finance is still a good field to get into,if you want to start your own business.And the top 3 consideration for owning a business are business degree,marketing and most all finance.That's how you can finance your business.