What Are The Common Ways Of Availing Finance For Small Business?

The small businesses in India have experienced a remarkable upsurge in the growth. These small businesses are the most significant contributor to the country’s economy and are proudly setting a milestone. Nevertheless, there is still room for improvement to become the best. SMEs indeed is a significant sector of India and have a lot of scope for business opportunities.  India has a huge market for small business as we have high number of population residing in rural areas. The country has a humongous workforce, and SMEs have the second-highest number of people employed. Expanding a small business or setting it up is a challenge. There are many challenges that a growing business see; one such is financing.

Some of the best ways of financing small businesses are as follows:

Bank Loans

It is one of the most sought-after ways of financing business activities in which a bank grants the loans. To avail a bank loan, it is necessary to fulfill the criteria which might be strict. Like, there is a need for collateral and a certain annual turnover. Borrowers are required to fill a loan application form which talks about the necessary information, like business type, legal structure, and partnership followed by heavy documentation.

Disbursement of funds takes place within weeks or sometimes even months, which is slower than other financing institutions, like NBFCs or online lenders. Demerits of banks overshadow the merits and are not very practical for those who do not fulfill the required criteria.

Business Loans

Now due to impracticality of bank loans, many borrowers switch to business loans. Small businesses which are in need of unsecured business loans at lower rates of interest or those who don’t have a satisfactory turnover may look for other alternatives like NBFCs. NBFCs, due to their easy eligibility criteria like an adequate turnover, even absence of collateral attract a lot of borrowers. Also their quick disbursement of funds, easy repayment schedule, and hassle-free documentation process opens up new ways for many borrowers.

Family and Friends

This is the easiest way of funding as friends and family are easy to reach, but different businesses have different loan requirements which might not be fulfilled by this. Also, you can’t pressurize them if they are reluctant. So this again creates a problem for the borrowers.

Venture Capitalists and Angel Investors

Just like banks, they have strict criteria for the provision of funds which are difficult to follow especially for a newly set up business. They only invest if they earn unvarying revenue and sometimes even ask for 20 to 25 percentage of their initial investment. Venture capitalists and angel investors are a good source, but some small businesses may surrender due to their stringent conditions.

Private Money Lenders

This is one of the commonest ways of funding. Back in the olden days people always went for money lenders even if they charged them heavily as these money lenders provided them immediate financing. Even now people choose them over banks just to avoid heavy documentation. But now they have newer options like non-banking financial companies which are easy to go with.

Although we see there are many ways to finance your business, they all come up with some demerits. It all depends on what sort of investment you have planned to make. Financing small business can sometimes be troublesome. Well, NBFCs are taking funding and financing to a whole new level, which makes them very popular among small businesses. Easy eligibility conditions and hassle-free documentation has made them the best option for availing a business loan.

Related posts

Leave a Comment