Every small business owner explores a whole lot of options to figure out where his starting or running capital, in terms of business loans, can come in from. Turning towards banks, for acquiring funding, is a natural option but no longer the only one.
With ever growing urgent funding needs coming up, business owners are finding intelligent ways of arranging a quick SME loan to put their ventures on the right track, without losing out on precious time.
Some popular, alternative funding sources of capital are as follows:
#1 Hidden personal wealth
Trying to finance your own venture is the best way to avoid getting involved in any kind of borrowing, which needs to be paid off eventually, and could dent your company’s profit.
Scrutinise your hidden personal wealth and consider all those assets that can be considered as sources of business capital, such as life insurance policies, retirement funds, and stock portfolios.
If you decide to tap into your personal savings to fund your start-up, it must be done in a systematic manner so that it does not leave you in a tight spot should anything go wrong.
As a thumb rule, always leave at least Rs. 5 Lakhs in your savings for unforeseen circumstances.
Borrow from your retirement fund but in a limited manner. This is a good option as you can withdraw 50% of the value of the account and that too without paying a penalty.
You can also leverage your personal savings and take an SME loan against the funds available in your account.
#2 Angel investors
Angel Investors, also known as venture capitalists, make savvy deals and invest primarily in small businesses with high growth prospects. The angel investor’s objective is usually to sell his or her stake in the business later on for a significant profit.
While an angel investor is entitled to 10% of the company’s value, the best part of working with one is that if your business suffers a loss, you do not have to pay back the money, as you would with a loan.
An angel investor’s fund availability, flexibility, expertise, and contacts make working with one a great idea.
However, before you get into any such agreement, be aware of the limited funds and loss of control you may face with this funding option.
#3 Commercial Lenders
New business owners, in the absence of the availability of a bank loan, often turn for business loans to commercial lenders. A commercial lender offers loans backed by hard collateral such as property, factoring, non-conforming assets and other sources of collateral.
The process of borrowing from a commercial finance company is comparatively quicker and comes at a higher rate of interest as compared to traditional banks.
In the absence of an asset, a business owner can also opt for a subordinated and unsecured loan, and gather the required funds to run his business, despite all odds.
Yes, it is true that money makes money grow. And so, if you have made up your mind to start your own company, do not allow a bank rejection to dampen your spirits. Explore reliable alternative loan options to fund your new venture but assess their pros and cons carefully before picking up the one you think suits your business needs best.