First off, there is no one quick way to solve a business funding problem – there are many. The first thing to remember in any loan for business situation is to not look for a quick solution, because a quick solution can turn out to be your nemesis at a later point of time.
Some of the options given below for addressing business loan requirements may seem untenable for you, and may involve compromises that you are unwilling to make. So, weigh all the factors carefully before singling out an option. Involve trained finance people if you have to. But make the decision with utmost care so that your business doesn’t suffer at any point.
Depending on the situation that you are in, any of these means to get a loan for new business may work for you:
- Overdraft facilities offered by banks
Most banks offer overdraft (OD) facilities for business funding based on their existing loans, current account balances and future cash flows worked out on the projected revenues of the company. While many banks offer this facility, OD retains the reputation of being a relatively expensive way to raise funds. However, it is also considered as one of the quickest ways for an enterprise to meet its business loan requirements.
Many banks now offer hybrid products like ‘working capital loans’ or ‘credit line.’ This again comes under the OD facility, involves very little paperwork and can be completed in a matter of minutes. Of course, you still need to remember that it comes with an advance fee and can be expensive. Nevertheless, it is an important facility to have if your business is capital intensive and requires cash flow at short notice.
- Loans from online lenders
Loans for new businesses need not always be from banks. A growing number of loan aggregator companies provide a single platform to submit applications and loan documentations to generate working capital for your business funding needs. The processing is quicker and the decisions are faster, making life far easier for businesspersons looking to raise a loan for new business.
- Crowdfunding
Crowdfunding – a trendy new concept that is fast catching up – is especially attractive for startups. It is a format where many individual investors buy into your business idea and fund your business either as debt or as capital itself, depending on how you prefer to structure it.
If you own a startup and you have a fantastic idea that has already crossed the beta stage, and you would like to raise funds either as debt or as capital to execute your ‘Go to Market’ (GTM) strategy, there are a few crowdfunding options that you can tap into. You can provide details, basis which individual investors can fund the idea depending on their capability, interest and risk abilities.
In Indian markets at least, crowdfunding has been a successful option for business funding B2C products where one must deploy relatively large sums of capital to take the product from beta to GTM stage.
- Angels / VCs / investors
If you are willing to part with a certain level of equity, angel investors or venture capitalists can prove to be good options as well. This would involve impeccable business plans, term sheets and projections. However, all that documentation would help you in crystallising your thought process with respect to the business itself. There are investors of different sizes who can provide you with the capital you need in taking your business to the next level.
- Microloans
This is a specific category of small loans for new business. Typically for small amounts – say less than Rs 5 lakh for a going concern — these are easier and faster to obtain than traditional loans. If your organisation is a partnership firm, the government provides loans of up to Rs 5 lakh under the Startup India Plan, which is also worth considering.
- Loans from vendors or deferred vendor payments
Though a tad unconventional, this can prove to be a great avenue to explore. Typically, most business owners look to financial institutions for funding. However, on occasion, vendors and favourable payment schedules can be great sources for generating positive cash flows. In fact, the success of many online commerce websites has hinged on favourable payment terms, sourced as loans from the vendors.
Many vendors also favour retail businesses inventory holders and extend credit till the product is actually sold! So if you are in the trading business, you would be holding inventory without even paying for it, and would be parting with money only on completion of sale. This brings added efficiencies to your business, even though you are operating on someone else’s money. Lower operational costs and higher sales will lead to better margins.
- Invoice discounting
Discounting is another option to meet business funding needs. If you have a large outstanding invoice book and slow paying customers, discounting can help ease the cash flow. Most banks allow discounting of invoices, but the charges could be steep. It works this way: You receive the cash for the invoice amount after deducting the discounting fee, which you can use for your immediate capital needs. These could be executing payroll or paying advance for the next round of raw material etc.
- Discounted sales / sales push
For any business, the best source of cash is the customer. Holding a big sale could help in raising cash quickly. This is true not only for the retail segment, but service providers too can offer discounts to people who are willing to pay quarterly, half-yearly or annual fees in advance. This is a quick way of raising capital.