5 MinsDec 22, 2022
India is the third largest start-up ecosystem in the world, producing 44 of the 105 unicorns in 2021 and 19 in 2022. Naina wants to benefit from this ecosystem and make her long-time dream of owning an e-shop of personalised gifts a reality. So far, she has been doing this at a local level for friends and family. Now she is getting corporate orders and needs money to execute orders.
The best way is to move from self-funding to debt funding, government grants and equity funding as the business grows. The right funding option for Naina depends on how much money she needs and for how long. Let’s explore them here:
Breaking the piggy bank never goes out of fashion. Every business starts with a self-funding start-up. When you raise money from a bank, government, or venture capitalist, they see how much you have invested in your start-up.
Naina has been saving money in Axis Bank Digital Fixed Deposit and other mutual fund investments to fund her start-up. These savings have provided her with a stepping stone to get started on her first few corporate orders. But she needs more money to complete other orders while she waits for client payments expected in 15-20 days.
Instead of putting all her savings into the start-up, she looks for other options to raise money.
2. Credit Card
If you want working capital, a credit card is a good option. Naina can use her Axis Bank credit card to buy materials for her orders and pay her credit card bills on time as soon as she gets her previous payments.
The credit card purchases will help Naina earn EDGE reward points that she can later redeem to buy more materials. She can also avail of other credit card services like instant loans against her credit card. But there is a risk of high interest in the event Naina delays her credit card payments.
Looking at the transaction volumes, Naina’s relationship manager recommends a Current Account for New Economy Group. It is a zero-balance current account that allows her to make unlimited transactions and cash withdrawals at home and non-home branches.
[Also Read: Eight key factors to look at before opening Current Account]
3. Small Business Loans
Naina is now a new-age entrepreneur with her own setup and a current account. It’s been three years, and Naina’s gift shop business is growing. The cash flow looks good but not enough to expand her business. She needs equipment and staff to expedite her work.
Naina hears about Small Business Banking solution that offer loan options like working capital loans, business loans, equipment loans and overdrafts (Axis Bank offers secured as well as unsecured overdraft options -- for aiding in cash flows and ongoing operational expenses). Each loan has different eligibility, interest rate, tenure and repayment structure depending on credit score and loan amount.
Axis Bank offers unsecured business loans starting from Rs. 50,000 up to Rs. 75 lakh for both Self-employed professionals (Doctors, CA, Architects, Engineers) and self-employed non-professionals. The loan helps to address your business requirements may it be investing in office/factory infrastructure, expanding operations, upgrading technology, stocking inventory to cater to seasonal demands, or simply meeting your cash flow needs. This collateral free loan can be availed for a minimum tenure of 12 months up to 60 months.
Another advantage of a business loan is that Naina can claim tax exemption on the interest repayment under the Income Tax Act 1961. So, while Naina will have to repay regular EMIs, she can claim tax exemption on the interest component of her EMI. Based on these factors she does a cost/benefit analysis and opts for a loan that best suits her requirement.
For an idea-stage start-up, the above three funding options work well. Once you have a working business model, you can consider reaching out to an angel investor for equity funding.
4. Angel Investors
Angel investors are experienced entrepreneurs with a strong network and surplus cash, and they are looking to invest in start-ups and earn higher returns. Before investing, they screen the start-up for its earnings potential. They take a significant equity stake in the start-up and mentor entrepreneurs on how to grow their businesses, intending to earn profit from their success.
The above funding options can give your start-up the right start to a brighter future.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.