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6 Clever Small Business Loan Options in India

A recent study shows factors like lack of financing, regulatory issues, market challenges and infrastructure highly affect the growth of small businesses in India. Nevertheless, the success of small businesses has remained constant even in the prevalence of such barriers. 

While these small businesses struggle to avail of loans from traditional lending institutions, they can resolve their financing issues by choosing other alternative funding options. Read on to know the 6 options for a small business loan that can optimally alleviate the financing issue among businesspersons.

  1. Angel investors

One of the most typical forms of small business financing option is angel investing. Angel investors, also known as private investors, seed investors or angel funders, are high-net individuals who provide financial aid to small businesses, usually in exchange for ownership equity on the company. 

An angel investor supports high-risk opportunities particularly that have the chance of high return. Angel investors’ funding may be a one-time investment (a single injection of funds) to initiate the business, or the funding (a series of investments) can continue to support and help the company get through a tough time. 

At the seed/early stage, a small business can get the lower amount from the investors, and once the company gains traction, it can get higher amounts from those investors.

  1. Venture capital

One of the common options of financing your small business is through venture capital. In this financing option, venture capitalists invest in start-ups that they believe to possess long-term growth potential. Venture capitalists provide monetary help in exchange for equity in the business. 

Venture capital consists of pooled resources from individuals and institutions. Unlike the traditional lending process, small businesses need not pay any interest on the money acquired.   

A venture capitalist can fund a small business at its different stages. Nonetheless, it primarily emphasizes early and seed round funding. Individuals can rely on this type of small business loan option for several reasons – to grow their manufacturing and sales operations, employ new staff, expand the business, etc.

  1. Invoice discounting 

Invoice discounting facilitates businesses to avail cash locked up in the unpaid invoices. When a company sends an invoice to a customer or client, that business gets a proportion of the similar or large amount from the lender (against the account receivable). 

  1. Cloud funding and crowdfunding 

There are several clever and creative ways of raising funds for your small business. Cloud funding and crowdfunding are two popular financing options that small businesses or budding businesses can avail. Cloud funding is financing a business venture through the internet, where a group of investors allows businesspersons to pitch their ideas.

Crowdfunding is a group of fund providers who help business ideas to reach investors through various platforms. The investment made through crowdfunding can be either equity or debt basis. These funding options let business persons reach to pool of investors instead of one big investor.     

  1. External Commercial Borrowings (ECB)

In the past years, the foreign debt doubled in India as financial institutions have adopted somewhat strict measures in lending money to business entities. Hence, External Commercial Borrowings (ECB) has made a significant position in the lending market.

ECB refers to the debt provided to an eligible entity in India for commercial purposes and is extended by an entity residing outside India. RBI is the regulatory body of the ECB. 

Willing individuals can avail small business loans from ECB in two ways: the approval and automatic routes.

  1. Loans from financial institutions

Currently, there are numerous low interest business loans options and providers available in India. The lowest business interest rate and simpler loan availing process of these fund providers made these loans a viable financing option among businesspersons. 

Reputed NBFCs like Bajaj Finserv offers business loan up to Rs.45 lakh at affordable rates. These NBFCs also extends pre-approved offers to ease the loan availing process. Further, these offers are also available on other financial products like personal loans and more. Individuals can check their pre-approved offer by entering their name and contact details. 

With the 6 small business loan options mentioned above, enterprises or entities can easily raise capital and continue their operations without any hassle.  

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