How to raise capital for a startup in India?

Apr 05, 2024

India is on its way to becoming the land of startups, as it is home to numerous thriving and growing entrepreneurs.

Particularly, recent years have seen a huge surge in the number of startups from different industries due to favorable socio, economic, and political conditions.

So, this is the best time for aspiring entrepreneurs to give life to their dreams and work on ways to raise capital for a startup.

Speaking about the funding, this remains the top challenge for new businesses to flourish and operate without limitations.

Despite having every potential to shine, a startup can face a doomed fate when it doesn’t have the right strategies for raising capital.

Though getting funding assistance for a new business venture appears challenging, it really isn’t.

Entrepreneurs have heaps of options to browse through and select their right funding source. Here we shed light on some of the most common and best ways to raise capital for startups.

Angel investor

Angel investors are individuals who invest their wealth and capital in budding startups.

They help them with funding, networking, hiring, and provide nurturing guidance and support.

In return for investment, they will have equity shares that they sell during the time of their exit and make money through it.

They can be from any professional background or even run their own successful startups. 

Unlike venture capitalists, angel investors invest their funds in a startup only in the beginning stages.

Being a vast and highly populous country, India has innumerable angel investors and hence this is one of the solid options to raise capital for a startup


It’s easy to approach angel investors directly but you will need a concrete business plan.

Along with the plan, you will need to work on the numbers like estimated profit margins, ROI, estimated fixed costs to back your application.

Angel investors can be picky and give importance to only the most promising and viable pitch decks.

Once you have the pitch deck ready, you have to find and approach angel investors in your niche.

Pros and cons

Though unlimited support and guidance and less paperwork are the positives, angel investors will expect rapid growth and the funding amount will be lower than the other ways to raise capital for small businesses.

Venture capital

Venture capital is a kind of business financing in return for equity shares.

The angel investment model may look pretty similar to venture capital investing. But they aren’t the same.

The main difference is that angel investors are wealthy individuals whereas venture capitalists are registered investment firms.

Venture capitalists invest in venture capital financing, a team of investors will review and weigh your business model and decide the best time and amount to invest in it. 

How to contact them?

You will have to prepare your pitch book that highlights your business plan and purpose, competitive analysis, target market, capital and cash flow requirements, and management structure.

Then list down VCs who invest in your niche and contact them and get ready to present your pitch confidently.

Some VCs accept entries only during a specific period through their website. You have to keep looking out for updates and notices.

Funding from business incubators & accelerators

If you cannot find them online, attend workshops, events, and TIE summits to meet potential investors and VCs.

In order to be eligible for getting recognized by a venture capital firm, you should have a business that’s more than a theoretical idea.

Pros and cons

You can raise a huge amount of capital and will get assistance in building your team and business.

But if your business doesn’t go as expected, you will lose it. And you won’t be able to get funds in a single installment.


NGOs and voluntary organizations already do crowdfunding for various reasons including charity, social causes, and peer-to-peer support to get through disasters and difficult times.

Crowdfunding also works in raising finance to start or run a business. Although crowdfunding is operating in a low-key environment in India, it holds huge potential as people are looking for different ways to invest profitably.

Hence this is one of the promising strategies for raising capital. There are many platforms available in India where you can raise capital for a startup as well as see how it’s done.

Some well-known platforms with low commissions and high reach are Ketto, Milaap, Kickstarter, Fundable, and FuelADream. 

How to obtain crowdfunding?

Crowdfunding can be obtained in four ways. 

Donation - When people donate money for you to start your business without expecting to get paid back.

Lending - When the donors pay you and expect you to pay it back where both agree to certain terms and conditions.

Crowdfunding with rewards - Here every donor will receive a small token of thanks or rewards which can be both financial and non-financial.

Investment model - One of the most prevalent ways to raise capital for small businesses, the investment model gives equity shares to every investor.

Even a very small contribution can work as you receive money from a large group of people.

Pros and cons

The risk is too low compared to other ways to raise capital for small businesses.

Also, your business seed fund goals are reached before you launch it fully. But it can take longer to reach the goal amount.

If the campaign doesn’t get reach, you may not succeed in raising capital.

Apply for loans under government schemes

The Indian government has facilitated many loan schemes to aid small and medium businesses' growth.

These loans are available for everyone and the repayment period and interest rates are flexible and low. There are loans for specific industries too.

Few government schemes and loans that give you options to raise capital for a company are as follows.

1. Mudra Loan Scheme

Launched in 2015 under the PMMY scheme, this scheme offers loans to MSME companies through nationalized and commercial banks.

A higher tenure period is its biggest advantage. Depending on the stage of the business, the offered loan amount varies. They have three plans: Shishu, Kishor, and Tarun. 

The maximum amount offered - Rs. 10 lakhs

Interest - 7.00% onwards

Tenure - 7 years

Required documents - applicant must produce their bank statement for the past six months, ID and address proof, and should come up with a profitable business plan.

Who is eligible? - Any Indian citizen who runs or wants to run a non-corporate small business segment including manufacturing units, food processors, wholesale and retail shops, processing and importing units, and other micro and cottage businesses. 

2. Standup India Scheme

The government of India has originated the standup India scheme to empower entrepreneurs from marginalized communities and women who are above 18 years old to start or develop their businesses.

Even non-individual enterprises are eligible for this loan. They offer a minimum amount of 10 lakh to a maximum of 100 lakh to eligible applicants at a repayment rate of 7 years and at a lower interest rate.

Pros and cons of raising capital through government schemes

Both interest rates and repayment period are highly favorable to the applicant and much better than what regular banks can offer.

Though this is one best way to raise capital for startups, it can take time to get your application approved due to the higher number of applications they receive every year.

Avail loans from private and public sector banks

Though government-run schemes have lower interest rates and long repayment periods, they can be hard to obtain.

Only 1 in 100 succeed through these options to raise capital for a company. But private and public sector banks in India always welcome enthusiastic entrepreneurs who are in need of financial assistance.

Interested business owners can contact nearby banks and make use of these strategies for raising capital.

Private and public sector banks in India encourage and provide loans to small and new businesses at nominal interest rates.

The basic eligibility criteria of all these banks are the minimum age limit (which is 21), a positive credit score, KYC documents, and collateral source in some cases.

The interest rate changes from bank to bank and it mostly lies between 11% to 17%.

Pros and cons

Banks have dedicated teams for loan processing and approval. Hence your application will be processed quickly and you will also receive frequent updates.

The application process will be also simple and stress-free. Most of the process happens online which makes it the best way to raise capital for startups in the comfort of your home.

Pledging an asset is mandatory with many banks when you go for a secured loan. You might lose the pledged asset if you don’t repay the loan within the tenure.

Small business loans - NBFCs, MFIs, microfinance providers

Banks will expect you to have a credit history to showcase your repayment capability.

Those who are extremely new to getting financial assistance and don’t have credit scores yet can reach out to non-banking financial companies or microfinance institutions.

They aren’t very popular (yet) but are one of the reliable ways to raise capital for small businesses. 


• To be eligible for NBFC loans, you must be a part of any self-help group or joint-liability group.

• Your business should have existed for at least a year. Additionally, the applicant should be older than 22 years old.

• The total amount can go up to 2 crores and there is 1 to 2% of the processing fee involved. You can stretch the repayment period to 36 months. 

• The documentation process will be brief. You will be required to submit bank statements, income tax filing and returns documents, and other proof.

The best attribute of NBFC loans are they come with pre-approved loan limits. That is, you can withdraw any required amount within this limit, use it, and pay interest only for the used amount.

To talk about microfinance loans, every state has different dominators who sanction loans to commoners who don’t have bank accounts or cannot access banking facilities.

They have helped many underprivileged and technically cut off people to access options to raise capital for a company and improve their business functional standards at a national stage.

The top microfinancing units in India are Equitas, ESAF, Annapurna, and Ashirvad Microfinance Limited. 

Pros and cons

They aren’t strict and stringent with eligibility criteria, and it’s easier to apply and get approved in a hassle-free manner if you tick all boxes of their small business description. At the same time, interest rates can be higher.

Business line of credit

As a small business loan, a business line of credit is offered for businesses to manage monthly cash flow.

There is a very short and standard repayment schedule to pay back the business line of credit.

Though the business line of credit isn’t one of the appropriate options to raise capital for a business, it works great in getting additional monthly funding to manage the gap in cash flow. 

There are many private lenders in India who render a business line of credit. There are two types of credit, secured and unsecured.

Unsecured is when no collateral is asked and secured is obtaining a loan by pledging any asset.

To be eligible for a business line of credit, you must produce your bank statements and other financial documents related to your business to prove your creditworthiness.

They take time to analyze your profile, approve the requested credit, and add that to your bank or wallet.

Pros and cons

The interest rate will be a lot lower than what traditional banks set for business loans.

Also, a business line of credit can be helpful in building and improving your credit score which plays a key role in demonstrating your repayment ability. 

However, if you don’t repay within the grace period, you will be liable to pay a hefty interest or penalty fee.

How to prepare your business for the funding?

Whether you are yet to start your business or it’s already running, you will have to work on a few things before getting it dusted for the funding process.

When you are prepared, you avoid last-minute stressful tasks that can render your funding process unachievable.

Before you partake in ways to raise capital for small businesses, identify where you stand, whether you are a startup that’s already established or you have an idea that needs execution.

1. Get your company financials in order and prepare your cash flow analysis

Investors would want to know your money management capacities and how the current financial management functions.

You will have to make a list of your current expenses, income, profit, loss, and every minute expense.

Also, review your current expenses in order to project the future funding needs and identify how much you will need to run your business.

2. Review your business plan

Though you will only send your pitch and summary to investors, the business plan finds its importance in later stages.

Once they proceed to move with your application, you will have to present your business plan for a detailed review.

Furthermore, banks require a well-written business plan to identify your business’s financial commitments and scope for revenue. 

3. Collect required documents

There are documents that you will have to present while raising capital for your business.

Collect bank statements, profit, loss, and turnover statements, and company accounting data.

Provisioning documents at the right time will expedite the funding process.

4. How to pitch for funding

Now is the time for creating your business pitch deck.

Make a presentation that includes the highlights of your business that will make the investors excited to know further about it.

There are templates available online that you can use to quickly prepare your pitch.

Once you are done preparing your pitch, prepare your presentation speech that includes the points not discussed in the pitch deck.

5. Choose your funding method

Depending on the stage of your business, your location, the industry that your fall under, and financial requirements, choose an ideal funding method from the options to raise capital for a company.

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