Small Business: Top 5 Financing Options for Small Businesses


Small Businesses are privately owned corporations, partnerships, or sole proprietorship’s which require smaller capital, less or no machinery, and employ a fewer number of employees.

Small businesses would require funds for a variety of reasons, including setting up new capacity or spending on advertising or for hire. The infusion of capital plays an important role in the transformation of a small business into a bigger company. It is presumed that small businesses find it challenging to raise capital as compared to large corporates. However, small businesses have several options at their disposal for raising funds.

Top 5 Financing Options for Small Businesses

Let us check out five of them:

1) Friends and Family Help

The fund required for small businesses is quite small compared to that of medium and large businesses. You can negotiate the Business loan interest rate when you are borrowing from family members or friends.  Most of the ideas get shaped into businesses with the help of family and friends. For smaller loan amounts, you can always seek help from your loved ones. The amount can go higher depending on their financial state and the trust in your business.

Incidentally, according to a survey conducted by RBI, 43% of respondents claimed that family members and friends were their largest sources of funding.

2) Government Schemes

The Indian government has introduced various business loan schemes for small businesses. These schemes have more benefits compared to the loans offered by banks and NBFCs.

Government of India offers Mudra Loans, MSME Loans and various other loans to help small lenders grow their business. The application processing takes a lot of time and chances of getting approved are quite less. But there is no harm in applying as long as you have nothing to lose.

3) Credit Card Debt

Credit card debt is the money taken against the credit card. Here, there is no interest rate or lock-in period. The person can use money up to the maximum limit set on the card and pay it in later months. There will be charges on failed credit card payments but it is an easy and simple way to get quick money.  But it may be difficult to raise credit card debt beyond a certain amount.

4) Crowd Funding

Crowdfunding is another way of raising funds without diluting equity. As of today, there are several crowdfunding platforms where aspiring entrepreneurs and business enthusiasts can raise money to get their business started by sharing their vision with the audience. Getting started with crowdfunding is not an easy option, but if done in the right manner with proper planning, it can help you substantial funds and simultaneously get your product or idea validated from the general public. Keep in mind that you share the objectives and goals of your business to the people. Form a good and experienced marketing team and plan out your campaigns well in advance. Float the crowdfunding link via popular messaging apps like Whats App to further increase your reach.

5) Non-banking financial institutions

NBFCs are among the most popular providers of business loans. They require minimal documentation and offer quick approvals. Certain non-banking financial institutions also offer unsecured small business loans within 24 hours. They also offer flexible repayment schemes to borrowers. Some NBFCs offer online business accounts which can be managed from anywhere. Interest rates charged by NBFCs range from 17% to 21% depending on various factors such as net income, location, collaterals etc. Certain NBFCs also provide customized business loans calculator for various segments such as women, traders, manufacturers and Chartered Accountants.

Whichever option you choose, think of it before taking that option. Figure out which one is the best and safest for you and go for that one.