Setting up a business requires money, but how should finding funding for small businesses take place? We spoke to the small businesses on our platform, and most of them had one concern –\u00a0they did not know how to secure these funds.<\/p>\n
A recent study showed that over 94% of small businesses fail within the first year of its incorporation.<\/strong> The main challenge behind this was a lack of capital or steady cash flow in hand.<\/p>\n While some of you may already have put in your savings into starting up or had some cash to bootstrap, a little extra money never hurts. If you are a small business, managing your money wisely can make or break the deal for you.<\/p>\n The most sure-fire way to get funding for your business is to apply for a business loan.<\/strong><\/p>\n However, even now, many businesses still get confused about:<\/p>\n So, before we discuss types of funding for small businesses, let us explore a few pre-requisites. Like this:<\/p>\n If you are thinking about how to start a business<\/a><\/span>, this is the most important question you need to ask yourself.<\/p>\n Are you looking for capital to kick-start the business? Do you need a loan to stock up on supplies? Or are you in an expansion mode?<\/p>\n In a nutshell, a small business needs funding to:<\/strong><\/p>\n Businesses need to grow. You cannot stuff your employees in a cramped 1BHK forever. Studies show that banks tend to loan money to small businesses that are looking to buy property at some point to expand operations.<\/p>\n This proves to banks and other lending institutions that your business is doing well, gaining profits and has a positive cash flow.<\/p>\n When you apply for a small business loan for buying or leasing property, it is given a mortgage. If you are headed for a long-term goal, it is given for a duration of 25-30 years.<\/p>\n Here is a guide on asking banks for loans successfully.\u00a0<\/a><\/strong><\/p>\n This applies mostly to seasonal businesses. You could be a small business, but you will still have to buy raw materials or supplies. In case your business is seasonal, you will want to buy your inventory supplies well in advance to make enough sales once the orders are placed.<\/p>\n For this reason, you may need a bank or NBFC to provide you with a loan, especially if you need to purchase a large amount of inventory at that time.<\/p>\n Such loans are generally short-term loans and you will be able to pay them off once the season is over.<\/p>\n Every small business needs working capital<\/a>.<\/span> It is the money you use to manage your day-to-day operations.<\/p>\n Small businesses need loans for daily incoming expenses until earnings come in steadily to cover their working capital needs. Banks and lending institutions provide these short-term loans to small businesses to enable them to kickstart in the market.<\/p>\n If you are just setting up a small business it is a good idea to get this loan, since it is easy to pay off. Your business can repay the loans once there is a positive cash flow coming in.<\/p>\n Working capital loans tend to have a higher interest rate than, for example, real estate loans since banks consider them riskier.<\/strong><\/p>\n Before taking a loan, there are some questions that you must ask yourself. Every loan is a liability, and you are putting yourself at risk. Even if the degrees of risk vary, you need to be able to return the loan at some point.<\/p>\n So – ask yourself:<\/p>\n Do you need<\/strong> a business loan? Consider other options before you finally decide on a loan. Keeping some time before requiring a loan allows you to conduct groundwork.<\/p>\n Once you\u2019re sure you need a loan, check up on your credit score, search around for an ideal lender or re-analyse the amount you\u2019ll need and prepare for a loan application.<\/p>\n Related read:\u00a05 Easy ways to raise money for your small business<\/a><\/strong><\/p>\n Request a copy of your credit report from your bank before applying.<\/p>\n Check your credit score to ensure you are viable for a loan. In case of any mistakes, you can approach the credit bureau or bank and rectify any errors.<\/p>\n A good credit score helps you score a low-interest loan.<\/strong><\/p>\n If you do not carry all the documents required for your small business loan<\/a><\/span>, there is a high chance you could get rejected by the bank\/ lending institute.<\/p>\n Some of the important forms you need to keep handy while applying for a small business loan are:<\/p>\n Enrol in free Mojoversity course to know more about Funding for your Small Business<\/p>\n Enrol for Free<\/a><\/p>\n<\/blockquote>\n <\/p>\n If you want to externally fund your business, there are some low-risk ways of making it happen.<\/p>\n Thankfully, banks are not the only way to get funds coming into your business to keep it going.<\/p>\n If you know people in your own personal network or other similar businesses, you can borrow funds from them for your business – also known as P2P lending<\/a><\/span>.<\/p>\n While this is a common type of funding, it is also highly risky in case you find it difficult to pay back the loan on time. Ensure your investors know the risks involved and ask for only what your company needs.<\/p>\n Affluent individuals who willingly invest in businesses that are doing well for themselves. They agree to invest in companies that meet their own eligibility criteria.<\/p>\n Angel investors invest in businesses, not just simply provide funding. Owing to their experience, they could participate in the management process as well.<\/p>\n Pitch your business plan to a plethora of online investors and they will pick you. Investments can be debt, equity or rewards-based.<\/p>\n Do your homework before launching onto a crowdfunding platform. Check reviews and testimonials.<\/p>\n Crowdfunding is a new way of funding for small businesses that have been gaining popularity. All you need to do is find a trustworthy crowd-funding<\/p>\n VC firms provide early-stage funding for small businesses and you can approach them if you are looking to borrow long-term, large-scale loans. VCs invest to control your company to an extent, so approach cautiously.<\/p>\n We understand that finding funds for your business can be a task that requires some knowledge upfront. so, we created a full course for you – for FREE! You can register for this course on mojoVersity<\/a> – our e-learning platform made exclusively for small businesses.<\/p>\n There are many government<\/a> and non-government funding schemes out there available for entrepreneurs. Some of them have certain eligibility criteria which you need to qualify. For example, there are certain funding schemes exclusively for women<\/a>.<\/p>\n\n
Do small businesses need loans?<\/strong><\/h2>\n
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When should small businesses apply for a loan?<\/strong><\/h2>\n
1. When it\u2019s time to expand the business<\/strong><\/h5>\n
2. When it\u2019s time to buy inventory & supplies<\/strong><\/h5>\n
3. Working Capital requirements<\/strong><\/h5>\n
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What small businesses need to know before taking a loan\u00a0<\/strong><\/h2>\n
Is the loan urgent?<\/strong><\/h5>\n
Check your credit score<\/strong><\/h5>\n
Do you have the documents ready to apply for the loan? <\/strong><\/h5>\n
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Alternative sources of funding for small businesses<\/strong><\/h2>\n
Peer to Peer (P2P) investment: <\/b><\/h5>\n
Angel investors<\/b><\/h5>\n
Crowdfunding<\/b><\/h5>\n
Venture Capitalists<\/b><\/h5>\n
Funding schemes<\/strong><\/h5>\n