Small businesses are the economic wheels of a country’s future, especially a developing one such as India. As statistics suggest, there are over 40 million small and medium business enterprises; both registered and unregistered, which contribute to a third of the country’s GDP. More and more people want to get out of the 9-5 rut and create innovative new inventions that can benefit people all over the world. The COVID19 pandemic has generated even more people to go ahead and start their small business, due to which there is a large growth in this sector.
Cash Flow, however, tends to be the biggest hiccup when it comes to small businesses. People have ideas and a vision but fall short of funds which are integral in taking the business forward. Not only this but they also sometimes lack the capacity as well as awareness to be able to raise these funds. Fortunately, due to this type of business’s lucrative aspect, it is now quite commonplace to raise funds for the same. This article will throw some light on effective solutions for generating money for running small businesses but first, let us take a look at what exactly small businesses mean so you can have a better understanding of the type of funding needed.
What Is a Small Business?
As the name suggests, a small business is a business that operates on a small scale and requires small capital. Most start-ups often start as small businesses and then go on to become larger companies after due funding. These types of businesses require a smaller number of staff as well as lesser equipment if any. More often than not, goods and services are provided for people in such businesses, and they often play an important role in the growth of the country’s economy.
Characteristics of Small Businesses
The below-mentioned characteristics of small scale industries will give you a better understanding of what they entail;
|Characteristic of the Business||Description of the Business|
|Management Control||The owner controls all the managerial tasks associated with the business|
|Limited Reach||Small scale businesses have a limited reach which can only consist of covering a small local area.|
|Ownership||Most of them are often owned by one person hence making it a sole proprietorship business.|
|Labour Focusses||Heavily dependant on labour and manpower, dependence on technology is often lesser than larger businesses.|
|Resources||Limiting wastage, small businesses often use natural and immediately available resources.|
|Flexibility||Unlike larger industries, small-scale businesses are privy to sudden changes, making them flexible to mould paths.|
Types of Small Businesses
It is sometimes difficult to tell the difference between medium and small-scale businesses, given both their products and services can be similar. Mentioned below are a few categories of small enterprises to give you a clearer picture;
- Export Oriented units
- Small Industrial units
- Women-owned small-scale industries
- Small-scale service-based businesses
- Micro-business companies
- Village industries
- Cottage industries
- Product-based industries
Funding Ideas for Small Scale Businesses
Now that we have a better understanding of what small-scale industries comprise, mentioned below are a few ways to raise funding for them.
- Crowd Funding
One of the most popular methods of arranging funding for small businesses, crowdfunding, entails word of mouth and peer-to-peer outreach programs. Owners reach out to several potential investors through numerous channels and pitch their industry idea to them in the hopes of getting through to them and raising funds. When investors decide to fund the business, this money can be lent in the form of debt, equity-based, or even incentive-based, which entails donors to offer them money and get rewards on profits in return.
- Reaching out to Angel Investors
Angel investors have additional cash dedicated to investing in lucrative start-ups, which will also help them make more money on the sum invested. This type of funding is mainly invested in the form of business loans and MSME loans that need to be paid back as per the stipulated time agreed by both ends. Reaching out to them, pitching the idea, and convincing them that this is a lucrative business opportunity lies in the small business owner’s hands, after which they can utilize those funds to expand and grow.
- Equity Financing
This is a useful and common method of raising funds for small business owners. Capital in this type of funding can be raised by selling stock of the business to the investors. This gives the investors some solid ground to put their money in without added doubt. Cash from this type of funding comes from a person’s personal assets or even via outsourced angel investors.
- Business Loans from Non-Banking Financial Corporations
Non-banking financial corporations (NBFCs) offer business loans to small businesses with flexible paying options and low interest rates. Bank loans have rigid norms and tedious application processes, so such companies have stood up for supporting small enterprises. NBFCs provide cash within as little as 48 hours to get the ball rolling in situations where there is a severe cash crunch.
- Venture Capitals
For small businesses that have reached above the start-up phase and demonstrate huge potential, venture capitals are an apt solution to fundraising. They are professionally managed funds that invest in the company against equity and exit when there is due acquisition. This type of funding helps grow the business by covering up any cash deficit, but the downside of this is that quick returns are expected.
- Programmed Offered by the Government
The Indian government has offered several programs like MSME loans to assist and support small businesses in achieving their true potential. This type of funding provides a great window for small and micro-small enterprises to carry forward their businesses with no hassle regarding money inflow.
- Trade Creditors
Often, small enterprises are associated with distributors and traders when operating their businesses. Owners can request them for capital to steer the business ahead without the stress of pay-backs. In such situations, the inventory or services that they are meant to provide can be a credit towards owners, payable only after the company reaches its profitability target and starts making money.
The best financing opportunities and methods for small businesses to raise funds have been stated above. Whichever method works the best for the type of enterprise can be engaged in to create new and wider chances to succeed. Raising funds to be able to run a small business can be quite daunting and tedious, but thanks to several companies, banks, and investors encouraging them, the process has become a lot easier and simpler to reach.