Most business owners seeking funds to grow their startups face a common dilemma between approaching investors or applying for a business loan. It’s best to weigh the pros and cons of both options before arriving at a final decision for your venture. Keep reading to get more clarity on startup funding, specifically in the Indian context.
Business loans vs investors: Understanding the two funding models
Before we explore which funding option suits your needs, let’s break down what each one means and understand the key differences between them.
Startup funding India option 1: Business loan
A business loan is a lump sum from a bank or a non-banking financial company (NBFC). You must repay it through equated monthly instalments (EMIs) over a set period, along with interest.
Startup funding India option 2: Investor
An investor provides financial capital to startups in exchange for a specific percentage of equity stake in the company. It means you will give some of your business ownership rights and share your future profits with the investor.
The two popular types of investors are angel investors and venture capitalists. Angel investors cater to startups in the early stages, while venture capitalists fund high-growth potential companies looking to expand.
Five reasons business loans can be a better startup funding choice
A business loan offers many benefits, making it an attractive funding option for early-stage startups. But is it the right fit for your specific business? Explore the top five pros discussed below to make an informed choice:
- Retain full ownership: One of the most significant advantages of taking out a loan is that it does not affect your ownership or control of your company. You also do not need to update anyone on your management decisions or ask for permission before taking a significant step in your business. Moreover, you retain 100% of your company’s profits, meaning lenders cannot claim a share.
- Easy and quick process: Applying for a loan is pretty straightforward. You must follow three steps: check your business loan eligibility, gather the required documentation, and complete the online application form. Moreover, if you opt for an NBFC business loan, you can expect startup funding in your account within 3-4 days.
- Predictable repayment schedule: With loan repayment, you know the monthly amount you must pay. This predictability makes it easier to plan your monthly business expenses and allocate funds for EMIs well in advance.
- No pressure for hypergrowth: Lenders do not require your business to grow at a hypergrowth speed to approve a loan. They typically look for factors such as business continuity, banking flow, and creditworthiness.
- Potential tax benefits: Interest on business loans is tax-deductible, helping you reduce your taxable income and lower your annual tax bill.
When should you still consider an investor?
A business loan promises immediate capital, ownership retention, and lucrative tax benefits. Despite these benefits, you may need to go the investor route for your startup funding in the following five situations:
- You need huge capital that lenders are unwilling to offer, or you cannot afford to repay.
- You are in a high-growth phase.
- You want a strategic partner who can provide guidance, industry connections, and mentorship.
- You are willing to share ownership.
- You do not want to deal with the pressure of capital repayment.
Common myths about business loans
Are you leaning toward business loans for your startup but still not 100% sure? You probably have certain preconceived notions about loans. Let’s bust these myths!
Myth #1: You must have a high credit score
Breaking your head over how to get funding for a startup if your credit score is low? One word: Don’t. NBFCs will readily grant you a loan if you fulfil the eligibility criteria, submit the necessary documentation, and complete the application form without errors, even if you have a low credit score.
Myth #2: Loan application and approval will take months
Due to technological advancements, business loan applications and approvals have become quick and easy. From application to document submission, you can complete the entire process online within minutes. If everything goes right, you can expect instant loan approvals and 3-4 day loan disbursals.
Myth #3: You must provide collateral to secure the loan
Business loans are collateral-free, which means you do not need to pledge any valuable assets to secure the loan.
Ready to grow your startup without giving up equity?
If you want to prioritise self-sustaining growth for your company, a business loan is the right funding solution. This type of startup finding allows you to retain ownership rights, have complete control over business decisions, and take home 100% of the profits.
Coming to the question: How to get funding for a startup? The answer is Manba Finance Business loan! You can get a customised loan solution for your goals, apply for a business loan online, and obtain the desired amount to move ahead in your startup journey quickly. And the best part? It’s completely collateral-free!
We understand that navigating business loans can be challenging. That’s why we encourage you to contact our supportive team if you have any queries. Take proactive steps to grow your business—Manba Finance is ready to power your startup’s success.
