| Overview: Starting or expanding a business requires adequate capital. This guide explores various funding options, including government schemes, bank loans, private investment, and fintech solutions. Learn how to choose the right funding method, understand costs, and access quick capital through business loans. |
Why Raising Capital Matters for Indian Businesses
Every business owner faces the challenge of securing adequate funds. Whether you’re launching a startup or expanding an existing venture, knowing how to raise funds effectively can determine your success. Recent data shows over 70,000 recognised startups in India, with entrepreneurs increasingly seeking diverse ways a company can raise capital.
From traditional bank loans to modern revenue-based financing, the landscape offers multiple paths to raise money for business growth. Understanding these options helps you make informed decisions about your company’s financial future.
Government-Backed Funding Schemes
These are programs and initiatives backed by the government to provide financial support:
Pradhan Mantri Mudra Yojana (PMMY)
The government’s flagship scheme offers three categories to raise funds for business:
- Shishu: Up to ₹50,000
- Kishor: ₹50,001 to ₹5 lakh
- Tarun: ₹5 lakh to ₹10 lakh
This scheme requires no collateral and offers competitive rates, making it an excellent capital-raising option for micro and small businesses.
Credit Guarantee Fund Trust (CGTMSE)
CGTMSE provides loans up to ₹2 crore without collateral. The government guarantees 75-85% of the loan amount, reducing lender risk. A semi-urban retail business with a ₹1 crore turnover can secure ₹30 lakh without a property mortgage.
| Scheme | Loan Amount | Interest Rate | Collateral |
| PMMY Shishu | Up to ₹50,000 | 8-10% p.a. | No |
| PMMY Kishor | ₹50,001-₹5 lakh | 8-10% p.a. | No |
| CGTMSE | Up to ₹2 crore | 9-12% p.a. | No |
Private Investment and Equity Funding
Securing private investment and equity funding can provide a business with the capital it needs:
Angel Investors and Venture Capital
Angel investors typically invest ₹5 lakh to ₹2 crore, taking a 10-30% equity stake. They provide mentorship alongside capital, making them valuable partners for startups seeking to raise capital.
Venture capital firms enter the post-proof-of-concept stage with larger investments:
- Seed Round: ₹1-5 crore
- Series A: ₹5-25 crore
- Series B: ₹25-50 crore
| Real-world Example: A Bangalore SaaS startup raised ₹50 lakh from two angel investors at a ₹5 crore valuation. The founders retained 70% ownership while gaining industry expertise and network access. |
Revenue-Based Financing (RBF)
This modern funding option allows businesses to raise money for business expansion without equity dilution.
How RBF Works:
- Repay 5-10% of monthly revenue.
- No fixed EMI structure.
- Higher sales = faster payoff.
Banking and NBFC Solutions
Businesses can explore a range of solutions offered by both traditional banks and NBFCs:
Traditional Term Loans
Banks offer term loans for asset purchase and expansion with interest rates between 8-15% annually. These loans require collateral for large amounts but provide predictable repayment schedules.
EMI Calculation Formula:
EMI = P × r × (1+r)^n / ((1+r)^n-1)
Where:
- P = Principal amount
- r = Monthly interest rate
- n = Number of months
For ₹10 lakh at 11% for 5 years:
- Monthly EMI = ₹21,749
- Total interest = ₹3,05,000
Working Capital Loans
These funding options address cash flow gaps and seasonal demands. Businesses pay interest only on utilised amounts, making them cost-effective for managing inventory and operational expenses.
| Pro Tip: Maintain 6 months of financial statements and GST returns ready for faster loan approval. |
Modern Fintech Solutions
Digital lenders have revolutionised how businesses can raise funds through technology-driven processes. The Airtel Finance business loan platform offers ₹50,000 to ₹75 lakh with minimal documentation and quick approval.
Key Benefits of Digital Lending:
- Speed: Approval within 24-48 hours.
- Convenience: 100% online application.
- Flexibility: Customised repayment options.
- Transparency: Clear fee structure.
| Success Story: A Nashik-based textile trader needed ₹15 lakh for seasonal inventory. Traditional banks required 2-3 weeks of processing. Using digital lending, funds were disbursed in 48 hours, enabling timely purchase of Diwali stock. |
Grant and Subsidy Programmes
Explore how grant and subsidy programmes can provide non-repayable funding and financial support:
Startup India Seed Fund Scheme
This non-repayable funding supports early-stage startups:
- Proof of Concept: Up to ₹20 lakh
- Prototype Development: Up to ₹50 lakh
- Market Entry: Up to ₹25 lakh
Technology Development Board (TDB)
TDB focuses on commercialising innovative technologies in AI, robotics, and clean energy. Grants range from ₹10-50 lakh without repayment obligations.
| Grant Type | Amount | Repayment | Focus Area |
| Startup India | ₹20-50 lakh | No | All sectors |
| TDB | ₹10-50 lakh | No | Technology |
| GREAT Scheme | Up to ₹50 lakh | No | Textiles |
Choosing the Right Funding Option
Here are some factors to consider while choosing:
- Cost of Capital: Compare interest rates, processing fees, and hidden charges across different funding options.
- Repayment Flexibility: RBF suits businesses with fluctuating revenues, while traditional loans offer predictable EMIs.
- Speed of Disbursal: Digital platforms typically process applications faster than traditional banks.
- Documentation Requirements: Government schemes often require extensive paperwork, while fintech solutions streamline the process.
| Avoid: Don’t choose funding based solely on interest rates. Consider total cost, flexibility, and alignment with your business model. |
Smart Capital Management Strategies
Successful businesses often combine multiple funding options to raise capital efficiently. A balanced approach might include:
- Government grants for initial setup.
- Bank loans for equipment purchase.
- Working capital facilities for operations.
- Equity investment for rapid scaling.
This diversification reduces dependency on single funding sources and optimises capital costs.
The key to a successful capital raise lies in understanding your specific needs, comparing available options, and choosing solutions that align with your business goals. Whether you need quick working capital through digital platforms or long-term growth funding through investors, the right approach can accelerate your business journey.
Modern funding options like Airtel Finance business loans combine the speed of fintech with the reliability of established financial institutions. Their streamlined application process and competitive rates make them ideal for businesses seeking efficient ways to raise money for business expansion without the complexities of traditional banking.
FAQs
1. What is the minimum CIBIL score required to raise funds through bank loans?
Most banks require a minimum CIBIL score of 650-700 for business loans. Higher scores above 750 unlock better interest rates and larger loan amounts with faster approval processes.
2. How do revenue-based financing costs compare to traditional business loans?
RBF typically costs 18-36% annually but offers flexible repayments tied to revenue. Traditional loans cost 8-15% with fixed EMIs, making them cheaper for stable cash flow businesses.
3. Can I use government grants alongside other funding options to raise capital?
Yes, you can combine government grants with loans or equity funding. However, ensure compliance with grant conditions and disclose other funding sources during applications.
4. What documents are needed to raise funds for business through digital lenders?
Digital lenders typically require Aadhaar, PAN, GST registration, bank statements, ITR filings, and business proof. The process is largely paperless with quick verification.
5. How long does it take to raise money for business through different funding options?
Government loans take 2-8 weeks, bank loans require 1-4 weeks, angel funding needs 2-6 months, while digital lenders can disburse funds within 24-48 hours.
