People often wonder where to raise funds for their business in a startup.
When a person has a plan to start a business but has no money to invest in the business, then he always wonders where to raise funds for his business. He has only two choices at that time: getting a loan from a bank or taking funds from investors.
1. Bank Loan
A bank loan is an option for a person who needs money for his business. Then the bank provides a loan on certain conditions: you have to return it to the bank at a given time whether you will collect its payment on time with its interest rate. If you fail to submit it before the due date, you will find trouble.
Before a bank gives a loan to its borrowers, it signs a bond with its customers. There, a debtor has to follow the rules and regulations of the bank about its policy, terms, and conditions about the loan.
A bank will never provide you with a loan unless you don’t have a worthy guarantor who takes responsibility for your loan.
2. Investor Funding
It is another option for raising funds for your business in a startup.
Investors are of two types are Angel investors and Venture capital.
A). Angel Investors
Angel investors are those persons or agencies who have a worth and good net worth. These offer funds for your startup business.
They don’t only help you invest capital in your business, but they are also great mentors. They guide the companies on how to earn profit and where to invest their money. These don’t take interest from you like bank loans, but they profit from the equity. They earn a good percentage of profit from the equity.
These angel investors invest their capital in your business to help you and earn revenues from the equity for their benefit.
B). Venture Capital
Venture Capital is a little bit different from Angel investors, It is a source of funding for your business, and these take funds from the high net worth people and do not invest their money like Angel investors.
They help you with the money taken from others, and in return, these provide the money back with a better profit.
Venture capital analyses the potential of your business and then provides you with funds accordingly. Then earn profit from you by charging a fee and keeping a profitable percentage from your earnings.
What Kind of Fund is Right For Your Business?
If your business is in the initial stage of the startup and your company does not have more expertise yet. Then getting help from investors is very beneficial for your company or your Company Cibil Score because a bank gives you a loan on certain conditions where you have to follow the terms and conditions of the bank. And have to return your debts on time, whether you are in loss or profit, but taking money from Investors like Angel investors and Venture capital is different from a bank loan option.
It is not risky as a loan. It gives you freedom because investors don’t force you like the bank, but they profit from your business rather than charging your interests.
Bank loan options will be better for those persons who have a well-settled business and have expertise in the business. They can easily meet the requirements of the bank.