Wealth Guide: Are you an entrepreneur? You can now raise funds for your business without any loan

Entrepreneurship is a growing trend these days and many mid-level executives are leaving their well-paying jobs to take the plunge into the world of business.

But launching a business is not as easy as it sounds as one needs to have adequate financial resources to tackle expenses like infrastructure, rent, raw material, salaries, marketing budgets, and so on.

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We spoke to Aankush Ahuja, Director of Business Development and Investments hBits to decode the complex structure of funding a business:

Different ways to fund your business:

Entrepreneurs typically infuse money into their business in three main ways—a) loans, b) equity, and c) bootstrapping.

Loans from banks and financial institutions are one of the easiest options to raise funds--if the lenders see the viability and no inherent risk to your venture.

But it also means you will have to pay interest on your loans--a recurring expense that needs to be borne throughout the loan tenancy, irrespective of whether your business is successful or not.

Banks also require collaterals such as shares, bank deposits or property papers to secure their loan in case the business is new.

Equity sharing is another common option that allows entrepreneurs to raise capital from venture capitalists and investors. Investors do not invest until they are convinced that the business is viable and profitable.

Secondly, you may end up losing control of the business or be completely sidelined--in the sense that you could end up working for the benefit of the investor rather than working to realize your vision.

Though it comes with its inherent risks, bootstrapping is the preferred option to fund a venture as it helps you retain control over the business while also motivating you to succeed as an entrepreneur.

Growing your investment:

Let’s say you are a mid-career professional with plans to start a micro small-scale industry in the next five years with an investment of Rs 40 lakh.

You have a sum of Rs 25 lakh set aside for the purpose and plan to invest it in some assets which will give you the requisite capital at maturity.

Some of the most common investments include PPF, FDs, shares, mutual funds, and residential real estate. As PPF has a lock-in period of 15 years, it is ill-suited to park your money as your investment horizon is less than the maturity period.

Tax-saving bank FDs have the right investment horizon but come with a low-interest rate of around 5-6%. An investment of Rs 25 lakh will grow to around Rs 32 lakh at 5% rate of interest which is well short of the required amount.

Shares and equity mutual funds generally fetch returns of 15% and 13% per annum on a long-term basis. Thus, an investment of Rs 25 lakh will fetch you around Rs 50lakh and Rs 46lakh respectively over a five-year period.

But these are highly volatile, and a market downturn at the time of maturity could completely wipe out your entire investment. Whereas residential real estate is illiquid as an asset class and offers moderate returns over a five-year timeline.

Fractional ownership: The best bet?

Fractional ownership of commercial property, which allows retail investors to invest in commercial properties in ticket sizes of Rs 25 lakh, could be an excellent investment vehicle for raising funds for your business.

With rental yields of 8-10%, capital appreciation of 5-10%, and rent escalation of 15% every three years, it is one of the best investments in the market today.

Assuming you invest Rs 25 lakh through fractional ownership, you could earn around Rs 2 lakh per year as rental income plus a minimum of Rs 1.25 lakh as capital appreciation annually.

Over a five-year period, your investment could grow to Rs 32 lakh while your rental income will add about Rs 10 lakh to your kitty, leading to a maturity amount of around Rs 42 lakh.

It makes sense to invest in fractional ownership today to effortlessly bootstrap your way to entrepreneurship in the next five years. Try it to get returns at attractive rates to fund your business venture.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)