Starting a small business is a big step. But it’s just the beginning. You’ll need to secure investment to grow, scale or even run your operations. However, getting the required funds can be a challenging process. In this blog, we will show the various options available for small businesses in Pakistan.
Forms / Modes of Investment
Before you get investment or funding for your small business, it is important to understand the modes or forms of investment. Here are the 2 major ways by which you can get investment for your business.
Equity Investment
Equity investment means you are going to give some ownership stake in your business to get funds. In this case, capital is given to the business in exchange for a percentage of the profits, shares, and/or possibly control over the business.
The capital is reinvested into the business in most cases to expand its operations and generate more revenue.
Debt Investment
A debt investment is a loan given to a business in exchange for repayment of the principal balance plus interest. No ownership is granted in this case. The money is lent with the agreement that it will be repaid regardless of the profits or losses.
Now you know the common modes of investments, it is time to see how you can get funding for your small business.
Crowdfunding
Crowdfunding is the phenomenon of using small amounts of capital from a large number of individuals to fund a business venture. You can consider it like pooled funding where different people (investors) invest small amounts of money. These small investments can become big enough as a whole to fund a business. Ease of accessibility via vast networks of people through social media and crowdfunding websites brings investors and entrepreneurs together. Seedout.org, Transparent Hands, and Care Foundation are some of the platforms for crowdfunding in Pakistan.
Angel Investors
Angel investors are people with vast amounts of capital. They are private investors who finance small businesses in exchange for equity (mostly). They are generally more patient with entrepreneurs and can inject smaller amounts (seed funding) for a longer period. But they do want to see an exit strategy at some point where they can pocket their profits, typically through a public offering or an acquisition.
Venture Capitalists
Venture capitalists are business professionals who invest money into startups on behalf of a risk capital company. Venture Capital funds identify and invest in startups (new and growing businesses). Unlike angel investors, they don’t do this with their capital, but with the capital of the firm they work for. These firms get money from individual investors, foundations, corporate pension funds, etc.
The goal of a venture capitalist is to invest in a business while it’s growing. Once (if) it becomes successful, they target to get a good return on their investment (ROI) via a company acquisition or when the business goes public.
Bank Loans
Bank loans are another option you can opt for if you want to raise money for your small business. Many banks in Pakistan provide loans to entrepreneurs with solid business plans.
NBP’s credit guarantee scheme (up to 1.5 million rupees for up to 5 years), HBL Small Business Finance (up to 15 million rupees for up to 3 years) etc. are some of the bank loans you can opt for this purpose.
NGOs
Some NGOs also provide loans to startups and small businesses. One of the renowned names in this regard is Akhuwat which provides loans (group or individual lending) to small businesses. One of the major benefits of raising investment for your small business from NGOs is that you may be able to get an interest-free loan.
Government Support for Entrepreneurs
You can search for government schemes offering funds for small businesses. Yes! There are some government schemes which offer funds to promising business ideas by young entrepreneurs. The following are some examples.
- Prime Minister’s Youth Business & Agriculture Loan Scheme
- Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme
Microfinance Providers
If you can’t get funds through conventional banking, Microfinance can be a suitable option. You can find different microfinance providers in the country which provide short and long-term financing to small businesses.
Bootstrapping
Bootstrapping is the process of starting a business with one’s own investment. It includes borrowed or invested funds from family/friends/connections and income from initial sales. If you can fund your business in this manner, you don’t have to rely on traditional financing methods, such as the support of investors, crowdfunding or bank loans. The benefit is you may not have to pay interest on the financing or give the equity to others.
That’s it from this blog. Which is your preferred method to get investment for your business? Tell us in the comments. Also, read the following useful blog if you plan to start a small business or are running it already.
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