How to get funding for a startup idea ?
Every startup needs access to capital, whether for funding product development, acquiring machinery and inventory or for paying salaries to its employees. Most entrepreneurs consider bank loans as the primary source of money, only to find out that Banks are really the least likely benefactors for startups. Thus, innovative measures to get funding include maximizing non-bank financing.
Here are some of the innovative sources for funding a startup :
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Personal financing :
It may not seem to be innovative but you may be surprised to know that most budding entrepreneurs never thought of saving any money to start a business. This is important because most of the investors will not put money into a deal if they see that you have not contributed any money from your personal sources.
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Personal credit lines :
One qualifies for personal credit line based on one’s personal credit efforts. Credit cards are a good example of this. However, Banks are very cautious while granting personal credit lines. They provide this facility only when the business has enough cash flow to repay the line of credit.
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Family and friends :
These are the people who genuinely believe in you, without even thinking that your idea works or not. However, the loan obligations to friends and relatives should always be in writing as a promissory note or otherwise.
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Peer-to-peer lending :
In this process, a group of people come together and lend money to each other. Peer to peer lending has been there for many years, also known as committees in India. Online platforms like faircent.com, which are RBI registered are also available. Many small and ethnic business groups having similar faith or interest generally support each other in their startup endeavours.
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Crowdfunding :
Crowdfunding is the use of small amounts of capital from a large number of individuals to finance a new business initiative. Crowdfunding makes use of the easy accessibility of vast networks of people through social media and crowdfunding websites like Ketto, Milaap, ImpactGuru, FuelADream, Rang De, Catapooolt to bring investors and entrepreneurs together.
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Microloans :
Microloans are small loans that are given by individuals at a lower interest to a new business ventures. These loans can be issued by a single individual or aggregated across a number of individuals who each contribute a portion of the total amount.
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Vendor financing :
Vendor financing is the form of financing in which a company lends money to one of its customers so that he can buy products from the company itself . Vendor financing also takes place when many manufacturers and distributors are convinced to defer payment until the goods are sold. This means extending the payment terms to a longer period for e.g. 30 days payment period can be extended to 45 days or 60 days. However, this depends on one’s credit worthiness and ability to pay more money.
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Purchase order financing :
The most common scaling problem faced by startups is the inability to find a large new order. The reason is that they don’t have the necessary cash to produce and deliver the product. Purchase order financing companies often advance the required funds directly to the supplier. This allows the transaction to complete and profit to flow up to the new business.
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Factoring accounts receivables :
In this method, a facility is given to the seller who has sold the good on credit to fund his receivables till the amount is fully received. So, when the goods are sold on credit and the credit period (i.e. the date upto which payment shall be made) is for example 6 months, factor will pay most of the sold amount up front and rest of the amount later. Therefore, in this way, a startup can meet his day to day expenses.
Above given nine ideas on “How to get funding for a startup idea” are the most widely used ones in today’s world.
How to get funding for a startup idea ?
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