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Investors are not the only funding avenue – here are others!

Bhupendra Sharma
31st Jul 2016
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Looking at the startup funding pattern lately, it seems like India will soon become one of the largest innovation hubs in the world. It's the perfect time to make your way into entrepreneurship and be a part of this revolution. But before you start your journey as an entrepreneur, keep in mind that getting funds is much more complicated than it seems.

Unless you or any of your core team members have studied at IITs or IIMs, chances are that venture capitalists (VCs) won't entertain you much. But don’t be disheartened and think of their rejection as the end of the road to your entrepreneurial journey.

startup funding

Image : shutterstock

Even if VCs deny you, there are many other ways in which you can arrange finances for your business and still make it a huge success. Here are some of them:

Peer-to-peer lenders

You can ask your family, friends and relatives to help you out with funds. Most of them know you better than VCs and hence, the chances of you securing funds from them are usually very high. You could even try your hand at a crowdfunding campaign to get your startup rolling. There are specialised ventures like Grex, EarlyWorms, Term sheet, LetsVenture and Equity Crest that help startups raise funds.

Hedge fund lenders

If you have full faith in your business idea and can present it well, hedge fund lenders can aid you in times of such difficulties. There is no upper limit for funding in this case, so the better you pitch, the higher are your chances of securing funds. The benefit of targeting hedge fund lenders is that you may get quick access to funds. However, repayment penalties and high borrowing cost are two major drawbacks. So, think before you take a call.

Factoring

Factoring is a traditional method used by businesses to arrange in-house funds. In this process, businesses sell their account receivables (ARs) to a financial institution often called a 'factor.' In return, they get funds up to 70 to 80 percent of the face value of their ARs. The remaining 20 to 30 percent, called 'reserves', is retained by the factor as security. During the period of refinancing, the factor handles everything from account administration to routine transactions, collections and even credit assessment. The cost of borrowing may go up to 20 percent of the face value of ARs. Factoring may give you access to funds very quickly (usually within 10 days), but it comes with the risk of putting your business in someone else's hands. So, consider your options before associating with a factor.

Customer lending

Customer lending isn't very popular in India, but still if you have a well-established business and a trustworthy customer-base, you can give it a shot. In return for financial help from customers, you can offer them discounted services and products. Gift cards, prepaid travel packages advance property bookings are some of the common examples of this practice. If many other businesses can successfully generate funds through customer lending, why can't you?

The availability of funding options depends on your business model, core team and on how well you pitch your idea. So don't lose hope when a VC disapproves your idea next time. The world has many more funding options for you. Just keep calm and try the ones mentioned above.

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