Alternatives to Traditional Business Loans in India

by Shubham Jain Loanpandit

Traditional Business loans in India have several alternatives, such as Crowdfunding, Bootstrapping, Venture capitalists, Overdrafts etc. The Indian financial market has started evolving significantly nowadays due to the introduction of new technology and unique ways that help business owners to gather required business finances.

It is hardly possible that banks will accept business loan applications every time. Every applicant is not worthy enough to meet the eligibility criteria set by lenders. Moreover, for new business owners and young age entrepreneurs, it’s almost next to impossible to get a business loan. Due to a lack of vintage and no income source, banks/NBFCs reject loan applications. Hence alternatives to traditional business loans come into the picture.

In this article, we’ll explore unique and innovative options to fund businesses. Also, you’ll get the chance to recognise which alternative suits your business best. Stay tuned to read more >

Must Read: Understanding Business loans

Top 7 Alternatives to Traditional Business Loans in India

Following below are some of the other possible ways to acquire funding in India; the alternatives to business loans are -

Crowdfunding

Crowdfunding is the best-suited finance option for new-age entrepreneurs and startups. In the alternative small amounts of funds are gathered from the crowd of people. Many people invest a small number of their earnings to borrowers/fund seekers who present their ideas and share details about the project. Crowdfunding is generally done using internet-based platforms, and for new-age business owners, it brings vision to their life through support and encouragement. Being an entrepreneur or crowdfunding seeker, prepare yourself with potential ideas and engaging business pitches.

Venture capitalists

Finding venture capitalists to invest in the business is not an easy call to take. They are professional business investors that generally fund startups and new-age businesses. Venture capitalists are the existing successful business owners looking to invest their money with the aim of more profits and productivity. They are eligible to give high-value funding along with their expertise, knowledge and support needed to reach the full potential of productivity. There are pros and cons associated with this alternative.

Pros

Deep Knowledge and Industry Expertise
More valuation if compared with a bank loan
Built and improved connections
Strategic decision making

Cons

Loss in Dominance
High expectations
Limited authority over the business
Venture capitalists exit anytime

Startup Incubators

Those big business organisations that provide funding and guidance resources to startups and new-age businesses are known as startup incubators. They offer various services like mentorship, office resources, networking opportunities and access to business funds. Incubators provide a collaborative environment for multiple startup founders to work together to share knowledge and skills to learn from each other.

Startup Incubator gives access to a broader scope by availing a wider community and professional working environment. Here one can refine his business model, develop products and get easy access to resources and expertise.

Overdraft

Overdraft is a funding facility provided by lending institutions against collateral/security. The lender analyses the repayment capacity by evaluating the credit scores and creditworthiness of the individual. In an overdraft facility, borrowers only pay the interest on the amount used. The funds can be used in this manner as long as both the interest and principal amount are repaid.

Get overdraft funding with OneNDF - an official loan platform for all credit and finance needs. They specialise in SME financing and provide competitive interest rates and repayment flexibility.

Invoice Financing

Invoice financing or factoring best suits small business owners that encounter a time gap between raising invoices and receiving payments from their clients. The funding provided is based on the amount raised in the invoice. Lending institutions finance upto 80% of the invoice value. The loan is repaid once the borrower receives payment from the client.

Bootstrapping

Bootstrapping is an alternative mostly explored by startup and new-age businesses at their initial stages. Small existing businesses secure funding through bootstrapping. One can involve his own funds or arrange funds from friends and families at comparatively low-interest rates. Bootstrapping is not effective if having high financial needs. It allows the usage of existing resources such as personal savings, computing equipment and personal space to start up your own venture.

Equipment Financing

This suits best to manufacturing business owners. The equipment financing or machinery loan is acquired against the equipment and machinery used in the business ecosystem. Machinery loans are particular in nature and require collateral along with some security. Interest rates are a bit lower if compared to other term loans. Acquire machinery financing at a lower interest rate and 5x faster disbursal with OneNDF. Also, explore new ways to finance business with their help.

Final Thoughts

Traditional business loans are no more the first priority of business individuals. New ways and better options that talk about individual interests are preferred nowadays. It is advised to select the finance alternative depending upon the business need and individual’s profile.

Being a business owner, it's your call to decide what suits best to your venture. For new-age businesses, crowdfunding happens to be the best available alternative that has unique advantages useful for today’s age business persons. The key to success is finding the appropriate balance between the maximum available funding and the least possible cost.

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