7 Innovative Ways to Fund Small Business Growth
Every business owner dreams of expanding operations, launching new products, or entering new markets. However, growth often requires a significant investment of capital, which can be a challenge for small businesses with limited resources.
Today, however, many creative ways to fund small business growth beyond traditional bank loans exist. This article will explore six options to fund business growth beyond just bank loans
- Venture Capital
- Government Initiatives and Grants:
- Revenue-based financing:
- Peer-to-Peer Lending
- BNPL (Buy Now Pay Later):
Crowdfunding has become a popular way for small businesses to raise funds in recent years. With crowdfunding, you can appeal to a large number of individuals to invest small amounts of money in your business. Platforms like Kickstarter, Indiegogo, and GoFundMe can help you get your campaign off the ground and promote it to potential backers. In India, Ketto, a crowdfunding platform, allows small businesses to raise funds from many people online. It has helped several Indian startups and small businesses to raise funds for growth and expansion.
To run a successful crowdfunding campaign, you'll need a compelling story, a clear plan for how you'll use the funds, and a strong social media and email marketing strategy.
Microloans are short-term loans of small amounts that are offered by nonprofit organizations, credit unions, and online lenders. These loans can be used for a variety of purposes, such as purchasing equipment, hiring employees, or launching a new product. They are often provided to low-income families or small entrepreneurs looking to grow and scale family businesses.
Some popular microloan providers in India include Bandhan Bank, Annapurna Microfinance, SKS Microfinance, BSS Microfinance, etc.
Venture capital is a form of funding provided by investors in exchange for a stake in your business. This type of funding is typically reserved for high-growth startups with the potential for significant returns.
To attract venture capital, you'll need a strong business plan, a proven track record of success, and a clear strategy for growth. You may also need to be willing to give up some control of your business. Indian Angel Network (IAN), one of the largest angel investor groups in India, has funded several Indian startups and small businesses. Other angel investor groups in India include Mumbai Angels and Indian Investment Network.
Grants are a form of funding that does not need to be repaid. They are typically offered by government agencies, nonprofit organizations, and private foundations.
Grants can be competitive and may require a significant amount of time and effort to apply for. However, they can be a great way to fund research and development, hire new employees, or launch a new product or service. The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), a scheme launched by the Government of India, provides collateral-free loans to MSMEs. Additionally, various state governments in India have launched schemes to provide financial assistance to small businesses.
Revenue-based financing (RBF) is a type of financing in which investors provide capital to a business in exchange for a percentage of the company's future revenues. Unlike traditional debt financing, RBF does not require the borrower to make fixed payments, and the repayment amount is tied to the revenue generated by the business.
In revenue-based financing, the investor receives a percentage of the company's revenue until the investment plus a predetermined return on the investment is repaid. The percentage of revenue paid to the investor is typically in the range of 2% to 10%, and the repayment period may last for a few years.
RBF can be an attractive option for businesses that do not want to give up equity or control of their company, as well as for those that have a predictable revenue stream but may not have the credit history or collateral required to obtain traditional bank loans.
InnoVen Capital, an India-based venture debt firm, offers revenue-based financing to startups and small businesses, where repayments are linked to the revenue generated by the business.
Peer-to-peer lending allows you to borrow money directly from individual investors, bypassing traditional banks. To qualify for peer-to-peer lending, you'll need a strong credit score and a proven track record of success. Faircent, an Indian peer-to-peer lending platform, connects borrowers with lenders online, offering a cheaper alternative to traditional bank loans.
More locally, many Indian shop owners and businessmen still rely on peer lending through local shops or via friends or acquaintances. India has millions of small shopkeepers who extend loans based only on trust and a manual khata book entry. According to a CMIE-CPHS study, nearly a third (30.2%) of households in India had loaned money from a local shop for business or another purpose.
The BNPL industry has recorded strong growth over the last 4 financial quarters in India. It is a payment option that allows consumers to purchase goods and services immediately but defer payment for a later date. It is a form of short-term financing that has gained popularity in recent years, particularly in e-commerce.
When a consumer uses BNPL, they typically pay for their purchase in installments over a period of weeks or months, with no interest charged as long as the payments are made on time. The payment schedule is determined by the BNPL provider, and the consumer may be required to make a down payment or pay a small processing fee.
LazyPay, Simpl, ZestMoney, ePayLater, and Cashfree are examples of BNPLs in India.
Credit lending, loan access, and delayed payments are major financial challenges for MSMEs and small businesses looking to grow in India. With these new financing methods now available, businesses can responsibly and innovatively obtain credit to move forward with their growth plans.
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