Funding Your Business: Strategies for Success

Abhijeet Goel -

One has to invest money in the startup stages of business whatever the category of business you are in. Money is also a constant requirement in the later stages of growth as well.

Example - If you want to open a restaurant then initially your expense (CAPEX) will be in

  • Kitchen Equipment
  • Rent (Deposit)
  • Raw Material - Ration, Vegetables
  • Packaging Material
  • Furniture - Table, Chair, Desk, etc.
  • Electronics - AC, Light, Fan, TV, etc.

After adding everything, even in a small restaurant setup, an initial investment of ₹5-₹10 lakh is required.

And running costs (OPEX) like

  • Raw Material
  • Salaries - Cook, Helper, Cleaner, Waiter etc.
  • Utilities - Electricity, Internet, Water etc.
  • Repair & Maintenance
  • Monthly Rent

Even the smallest restaurants have a daily running cost expense of ₹4000/- to ₹5000/- That is why both types of funds are always needed for business.

Let us see how we can raise both types of funds and how we can fund any business with an example of a restaurant startup business.

Initial Investment (Capex) - Source of Funds

Your investment capital gets blocked for a long time and you will recover it slowly from profits. You need such a source of funds that you do not have to return the money soon. You should get at least 5-7 years to return the capital.

  1. Own Funds - You can raise the initial investment by using your savings/gold/property. You will not have to pay any interest on this capital and there will be no pressure of emergency return.
  2. Family & Friends - You can take this money from your family members or friends. This money is usually interest-free but can be demanded back at any time. Tell your relatives that you will not be able to get it back in one go.
  3. Bank  / NBFC / Informal Loans - Usually, Banks provide Term Loans, Equipment Loans, etc. for initial investment. The interest rate is usually 12-24% per annum. Usually, the bank also asks for collaterals (gold/property/machinery/shares, etc.) and your contribution (margin money). These are good products if you have a good CIBIL score and a good banking track record.
  4. Equity Funding - You can partner with someone else in your business and get an investment from them for the return. This partnership is usually in the form of profit share/royalty/company shares. For this, you can approach other people in your field.
  5. Committee/Chit Fund - If you create a group savings or committee etc. then you can also use that to raise investment for your business.

Short-Term Working Capital Finance - Source of Funds

You need this capital to cover running costs. For example, you will get your money from customers after 10 days but you have to spend it daily on raw material. This is needed for the short term like weeks and months to balance cash flow. You can arrange this from here.

  1. Suppliers / Vendors - You can take goods on credit from them. And when your payment comes, you can return it to them. Usually, the credit period is 7-30 days.
  2. Banks (Credit Limits) - You can get a credit limit from the bank. In the credit limit, you will only pay interest on the amount you use. This will ensure that you have money available whenever you need it and you will not have to pay unnecessary interest.
  3. Gold/Stock Finance - If you have gold, you can also take a loan against it from jewelers/bankers. This is usually a very cheap loan and is available easily and very fast.
  4. Credit Cards - If you have a credit card from any bank, you can use that too. Usually, you get a credit period of 30-45 days which is interest-free. You can apply for a credit card online. Usually, SBI credit cards and HDFC credit cards are the most popular.

Frequently Asked Questions (FAQ)

  1. How to take a business loan for a startup from a bank to fund your startup?

Banks usually avoid giving loans to completely new businesses/startups for the simple reason that it is extremely risky. Once a business has a vintage of 3 years, Banks are more willing to lend... Once you are ready, The Loan documents required for getting a bank loan are  

  • GST Returns
  • ITR Returns
  • Bank statement

Business loan rate of interest usually starts from 10% per annum and goes up to 20-22% per annum. The rate of Interest for Business loans by Government Banks like SBI, and PNB is usually low (10-12% p.a) Unsecured business loans have a little higher interest rate and business loans for women are usually 1-2% cheaper.

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