What Type of Funding is Best for My Company?

by | Nov 4, 2017 | Business Feature

With an array of funding options available, your business enterprise may be at a loss, about which funding avenue you should opt for. You can associate the type of funding with the stage of your company. Generally, there are five stages of any business life cycle. These stages are: seed/ development, start-up, growth, expansion, and maturity.

Enterprises need funds for various processes across the different life stages. Human resource and infrastructure costs are applicable at all stages. A company in the seed stage will need money for product research, development of commercial viability, and for testing the markets.

A start-up would concentrate their financial resources more on business development. In the growth and the expansion stage, you must fund the expansion of the markets, inventory, and service or product range. At the maturity stage, a company needs finances to sustain their success streak.

To know what type of funding is best for your company, let’s understand the stage of your company. However, the funding types can overlap across the different stages.

Funding As Per The Stage Of Your Company

1. Seed Stage

This is a stage when you have an idea/product/service which is popular with your close associates. You need funds to translate it to a commercial success. While you can start with your funds (bootstrapping), it may not be enough. At this stage funding from incubators and accelerators are very useful.

The accelerator programs run like university courses, as a part of the curriculum for a given period. They provide a seed investment and a mentor network.

Incubators provide space and equipment to help the venture take wings. They have a larger equity stake than the accelerators. Corporate seed funding and crowd funding are other popular methods of raising money at this of business.

2. Start-up Stage

According to the Department of Industrial Policy, an entity, incorporated or registered in India, ceases to be a start-up, if its turnover for the previous financial years has exceeded Rs. 25 crore or it has completed 7 years. Biotechnology companies are start-ups till 10 years from the date of incorporation/ registration.

The most common funding types used at this stage are: angel investment, venture capitalism and government lending initiatives.

Several angel investors show interest in investing in small businesses that have high potential. A strong business plan can help you to beat the competition and secure funding for your business.

Venture capital investment is a kind of equity investment. These firms invest in about 50% or less of the equity of the companies. Accepting funds from them will lead to dilution of your stakes.

Indian government has launched a scheme called Pradhan Mantri MUDRA Yojana (PMMY), also called MUDRA Loan. Three loans provided in the scheme have varying loan cover and interest rates.

3. Growth And Expansion Stage

In the growth and the expansion stage, the markets are established, and the companies seek new growth frontiers. The cash flow improves, but the increasing costs of expansion overwhelms the cash in hand. You would have to look for external sources to fund your growth.

While you can opt for venture capital funds, term loans and government loans, business loans are highly preferred at this stage. Business loans help to fund your daily working capital needs, infrastructure and human resource expansion, and purchase of the inventory and machinery. You can avail business loans from financial institutions in the form of line of credit. You can get approval for certain limit of loan, for a said tenor, at nominal business loan interest rates.

Your monthly EMIs includes only the interest amount and not the principal amount. This decreases the monthly pay-out. Bajaj Finserv offers business loans up to Rs.30 lakhs without security, for a tenor up to 96 months. The interest on business loans are low. The principal amount of loan is repaid at the end of the tenor of the business loans’ facility. Unsecured business loans have less need for voluminous documentation.

It takes 24 hours or less for loan approval. The flexi amount lets you pay only the interest component, on the amount that you borrow. You can get started by checking the business loan eligibility criteria of Bajaj Finserv Business Loan. Get an idea of the payable EMI, documents required for business loan, and make a free online application.

4.Maturity Stage

Once your markets mature, you can either expand further or exit the business. If your enterprise can grow to new horizons, then you need to go back to considering the funding options of the expansion stage. However, if the financial stability of the company is at stake, then private equity is a viable option.

Private equity (PE) firms buy 100% ownership of the companies in which they invest. They generally buy mature companies whose profits begin to decrease. They target companies with stagnant business models.

Understanding the stage of your company helps you zero in on the funding options.

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