• Small business financing (also referred to as startup financing or

franchise financing) refers to the means by which an aspiring or

current business owner obtains money to start a new small business,
purchase an existing small business, or bring money into an existing
small business to finance current or future business activity
• There are many ways to finance a new or existing business, each of
which features its own benefits and limitations.
• Small business financing into the two broad categories of traditional
and alternative small business financing options.
• The past few years have seen a surge in the number of start-ups
cropping up all over the country. Numerous ideas have taken shape
into successful businesses. The economy has seen a healthy rise in
investments in these small-scale businesses that have provided
livelihood to millions of Indians.
• The sources of debt financing may include conventional lenders
(banks, credit unions, etc.), friends and family, Small Business
Administration (SBA) loans, technology based lenders, microlenders,
home equity loans and personal credit cards.
• Equity sources
• Money contributed by owners
• Personal savings
• Friends and relatives
• Partners
• Debt sources
• Sources of funding that requires
the money borrowed to be paid
back with interest
• Banks
• Finance companies
• Credit unions
• Government agencies
 Equity financing
• The principal practical advantage of selling an ownership interest to finance a new or existing
small business is that the business may use the equity investment to run the business rather
than making potentially burdensome loan payments
• In addition, the business and the business owner(s) will typically not have to repay the
investors in the event that the business loses money or ultimately fails.
• The disadvantages of equity financing include the following:
• By selling an ownership interest, the entrepreneur will dilute his or her control over the
business.
• The investors are entitled to a share of the business profits.
• The investors must be informed of significant business events and the entrepreneur must act
in the best interests of the investors.
• In certain circumstances, equity financing may require compliance with federal and state
securities laws.
•
Debt financing
• The principal advantages of borrowing funds to finance a new or existing small business
are typically that the lender will not have any say in how the business is managed and
will not be entitled to any of the profits that the business generates. The disadvantages
are the payments may be especially burdensome for businesses that are new or
expanding.
• * Failure to make required loan payments will risk forfeiture of assets (including possibly
personal assets of the business owners) that are pledged as security for the loan.
• * The credit approval process may result in some aspiring or existing business owners
not qualifying for financing or only qualifying for high interest loans or loans that
require the pledge of personal assets as collateral. In addition, the time required to
obtain credit approval may be significant.
• * Excessive debt may overwhelm the business and ultimately risks bankruptcy. For
example, a business that carries a heavy debt burden may face an increased risk of
failure.
• Any new venture needs a capital. Not everyone has the backing of
venture capitalists ready to pour in millions of rupees. Non-availability
of timely and adequate funds can dampen the spirit of
entrepreneurship. In addition, arranging for collateral or security can
be tough for a few. There are also other factors like stringent
government policies, legal framework, regulatory gaps, unreliable
information, etc; that could delay the process of procuring the initial
capital.
• Hence, the Indian Government has introduced a number of financial
aids to help small scale entrepreneurs to achieve their business goals.
These schemes and loan products are designed to make sure that
they reach the remotest of areas all over the country. There are
schemes that can be availed with very minimal or nil collateral. Loans
procured under these government schemes are a good choice due to
its lower interest rates.
• PMMY OR PRADHAN MANTRI MUDRA YOJANA
• CGS OR CREDIT GUARANTEE SCHEME
• BANK CREDIT FACILITATION SCHEME
• STAND-UP INDIA SCHEME
• SMILE OR SIDBI MAKE IN INDIA LOAN FOR ENTERPRISES
• MSME LOANS FOR START-UPS IN 59 MINUTES
• Technology and Quality Upgradation Support to Micro, Small &
Medium Enterprise (TEQUP)
• Credit Linked Capital Subsidy Scheme (CLCSS)