Exploring the Fundamentals of Small Business Funding

Securing funding is a critical step in the lifecycle of a small business. It acts as the fuel that ignites operations.

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Small Businesses have a large contribution to any economy’s consistent growth and it is important that small businesses are able to thrive and grow in any given market conditions. Most entrepreneurs start their journey with small businesses. Having financial assistance in the starting stages is crucial for a small business to flourish. Most small businesses struggle and at times shut down due to financial deficiencies. They do face funding challenges, however today there are various lenders out there who could support them to ensure their sustainability in the business spectrum.

The Role of Financing in Small Businesses

Securing funding is a critical step in the lifecycle of a small business. It acts as the fuel that ignites operations, allowing businesses to:

  • Launch and grow: Launching business and growing in initial stages needs finance which is essential for a small scale business. Equipment buy, inventory/raw material financing, marketing, and hiring are some of the initial needs for a small business.
  • Maintain cash flow: Expenses could come out of the blue and a business should be well prepared to face such scenarios, having cash reserves does help in avoiding such risks.
  • Invest in innovation: Adapting and staying updated with latest tech and innovations is mandatory to survive the test of time and challenges, evolution in tech is only possible with adequate cash reserves.
  • Expand operations: To capture new demand and markets and thereby new business opportunities a small business should expand their horizons and that obviously comes with a requirement of additional capital for building branches from scratch. 

It is clear that capital requirements are unique for every business from different points of views and one solution won’t fit every sort of business and the case is very much the same for small businesses as well. Regardless of their needs, wants and operational style it is clear that funding is a crucial need and needs to be addressed for sustainability and stability.

Process for Securing Small Business Financing

The journey to acquiring funding involves several key steps:

  1. Develop a Solid Business Plan: Regardless of which source of funding is being approached, having a business plan handy would increase the chances of securing successful funding as it increases confidence from the lender's point of view as well. Having a documented plan will showcase your confidence and vision for your respective business too. This document serves more or less like your pitch deck.
  2. Assess Your Funding Needs: Carefully evaluate the amount of capital required to achieve your business objectives. Factor in startup costs, ongoing operational expenses, and potential growth opportunities. This will guide you towards the most appropriate funding avenues.
  3. Research Funding Options: Explore the diverse landscape of financing possibilities:
  • Bootstrapping: Self funding is the basic method and doesn’t require any sort of bureaucracy and is straight forward. Personal savings act as the source in this methodology or it could even be from sale of self owned assets.
  • Small Business Loans: Small business loans are a widely popular category in 2024 from sources like govt, banks, fintechs and NBFCs and are growing in popularity, however the value addition is different from each source due to the pros and cons.
  • Alternative Lenders: The new generational lenders are also emerging and online-only players are also on the rise. With higher interest rates being charged these options could also be feasible to some business owners.
  • Grants: Govts also consider small businesses important. Also, grants could get facilitated by Government agencies, non-profit organizations, and foundations may offer financial assistance for businesses aligned with their specific missions or initiatives.
  • Crowdfunding: As someone once said, modern problems need modern solutions and one such solution is crowd-funding where with the help of an online platform with a strong case business owners could get funding from a larger crowd who are willing to contribute to the growth of business without any expectations of returns or for an agreed upon share.
  • Angel Investors: Angel investors are a self explanatory source of funding and are prominent. They usually invest in businesses in return for equity share or partial ownership based on the agreement between both parties.
  • Venture Capital: VC firms provide substantial funding for high-growth businesses with significant potential for return on investment, often in exchange for significant equity stake.

4. Prepare a Compelling Pitch: Craft a persuasive presentation that effectively communicates your business concept, market opportunity, competitive advantage, and financial projections. This pitch should resonate with potential lenders or investors and convince them of your venture's potential for success.

5. Create a Strong Credit History: A good personal and business credit score is crucial for securing favorable loan terms. Building a solid credit history by managing existing lines of credit responsibly demonstrates your financial discipline and trustworthiness.

6. Seek Guidance: Don't hesitate to seek professional assistance from financial advisors, business incubators, or SCORE mentors who can provide valuable guidance throughout the funding process.

Common Barriers to Fund Acquisition

The road to securing funding may not be smooth sailing. Some common obstacles small businesses encounter include:

  • Lack of a strong business plan: As mentioned before a well crafted business plan does help and not having one may act as an obstacle in securing a business loan.
  • Inadequate credit Score: Credit score is looked up by almost all types of lenders and having an inferior credit score may limit your chances to secure capital. Working towards improving credit score to the bare minimum range would help small businesses to leap over this common obstacle.
  • Limited collateral: Lack of collateral could be a potential threat, however NBFCs these days offer unsecured business loan and could work out as an alternative to businesses who are struggling with this challenge.
  • Industry-specific challenges: Let’s now address the elephant in the room, there is an evident leaning to particular industries and less interest to certain industries pertaining to potential risk in recovering funds and due to the other risk factors which often arises as an unfortunate challenge to certain industries.
  • Unrealistic funding expectations: It is good be optimistic and to have high hopes, but some businesses do overestimate the amount of capital they need, leading to difficulties finding investors who are willing to meet their capital demands.
  • Competitive landscape: A saturated market with numerous competitors vying for the same funding pool can make it challenging for a new business to secure financing.


Getting funded is important for small businesses and out of all the available options NBFCs would be ideal for them as NBFCs do have various options of funding that would suit the business based on its unique necessities. NBFCs are able to provide loans without the requirement of pinning collateral against the loan which is not the case when approaching mainstream traditional lenders.