Securing funds is the very first step a business or startup owner has to take after the inception of the big business idea. After all, although finding an opportunity or coming up with the concept is a big part of starting a business, having funds to make that idea come to fruition is just as crucial of a step, if not more. Therefore, this blog will discuss how you can secure funds for your business or startup. At The StartupLab, we provide excellent services to aid your business and offer guidance, and we are here to walk you through the numerous steps of securing your funds. 

What is Debt Funding?

Also called debt financing, it is a type of funding provided to startups by a lender or an investor, such as a bank or angel investor, for a fixed amount of time until the business owner has to repay. It is similar to a traditional loan, where the loanee repays the amount with interest. 

Steps To Secure Debt Funding

Let’s go through the steps one by one:

Step 1 – Determine The Amount Needed

The first step is determining how much finance your business or startup requires. This is important because not knowing this crucial detail would derail any chances of getting a loan, as no bank or investor would invest in a business that is not stable enough to get a loan figure. Consider deciding on an amount relevant to the requirement and supporting your credit history. Getting an amount that is too high is also not optimal, as you would have to return it with interest. 

Step 2 –  Determine The Funding Type That Suits You

After deciding on the amount of funds required, the next step is to choose the type of debt funding. There are various options, such as banks, financial institutions, and investors, but the right one will be revealed only after researching what kind of debt financing is best suited for your business and its industry. By taking this step very seriously and conducting it thoroughly, you can find the right lender, as each has advantages and limitations. 

Step 3 – Research The Lenders

After determining the best debt funding type for your business, the next step is to recognize the best lender in that type. This is a crucial step that can make or break up your startup venture. It will decide who will be your long-term monetary support provider or even a business partner. Choose and compare thoroughly, meet investors, and let them get to know the business. In this phase, always keep a lookout for any signs that may cause issues later on and choose wisely.

Step 4 – Gather Financial Information

The research steps are now done; now is the time to gather essential financial information that may be required for your application. Be thorough and study the lender’s requirements, as each lender has a different set of documents that may need to be submitted along with the details of your financial information. 

Step 5 – Prepare A Strong Business Plan

Creating a business plan that showcases your business or startup’s vision and goals is a crucial step and must be followed. It is not compulsory, but any business that believes in itself should have a business plan. It should outline what the funds would be needed for and a projection for the future of your business or startup. A business plan should be comprehensive and should have enough details and answers to important questions that it makes the lender confident in your business, readily providing debt funding support. 

Step 6 – Submit The Application

The next step is the crucial step of submitting the application for debt financing. Just as the previous research-based were time-consuming, this step and the time taken to review your application can vary from lender to lender. A bank could take a long time whereas it could be faster if your application is to an investor you personally met. 

Read More: Debt Funding Vs. Equity Funding: Which Is Best for Your Startup?

Step 7 – Review The Loan Terms

You will receive a debt funding offer after your application is accepted and reviewed. You and the lender may have already agreed on terms verbally, but reviewing the newly sent terms before accepting is crucial. Check all the fees and penalties related to your loan, and check for any hidden costs or inflated interest rates. You should also send a copy to your lawyer and let him go through the terms. If any questions arise, reach out to your lender and ask for clarification. This is also one last chance to see how they treat you and how responsive they are before signing the deal.

Step 8 –  Receive the Funds

Now, we are at the final step, which is to receive your funds. After both parties have accepted the loan terms, the funds should be sent to whichever channel was decided to grow your startup or business.

Last Words 

Funding is crucial, the starting point of any business or startup. By following these steps with enough dedication, preparation, and research, you can secure debt financing and start your entrepreneurial journey. At The StartupLab, we specialize in aiding startups or businesses get that little push they need to grow and thrive with debt funding in India. Check out our services, which are uniquely curated for your business and its continued growth. Together, let’s reach newer, unseen entrepreneurial heights. 

FAQ

Q. What is debt financing for startups?

Ans. It is the process in which the founder of the startup takes a loan, to be repaid with interest. It allows him or her to keep full ownership.

Q. What are common lenders for  funding for startups?

Ans. The common lenders are investors, banks, government and NBFcs for startups

Q. What are the key advantages of debt funding?

Ans. The main benefit of choosing debut funding is the fact that the founder keeps full ownership and does not have to break up his or her ownerships into equities.

Q. What do lenders look for in a startup to consider giving a loan?

Ans. Lenders assess your vision and your business plan, if they consider your startup to be in good financial health, they proceed with the funding process.

Q. What are some challenges of securing debt financing for startups?

Ans. The most challenging aspects are credit requirements, providing collateral, managing cash flow for repayments, and potentially high interest rates.