How to Raise Funds for Small Business in India – Best 8 Ways

If you’ve ever tried running a small business in India, you already know—money is always the headache. You might have a solid idea, maybe even paying customers, but when it comes to scaling up or just keeping things afloat… bam, you hit the funding wall. In this article, our funding experts have listed the best ways to raise funds for small businesses.

Here’s a sobering fact: according to the Reserve Bank of India, over 80% of Indian SMEs say that lack of funding is their biggest barrier to growth. And it’s not hard to see why. Banks are cautious, investors are picky, and government schemes? Well, sometimes the paperwork alone feels like a full-time job.

But hang on—it’s not all bad news. Things have improved a lot over the last decade. With government-backed loans, online lending platforms, angel investors, venture capital funds, and even crowdfunding, you now have more ways to raise money than ever before.

This guide on ways to raise funds is meant for the real doers out there—the chai café owner in Nagpur, the SaaS startup in Bengaluru, the boutique designer in Jaipur, and the MSME unit in Surat. Basically, if you’re hustling to start, sustain, or scale, this article is for you.

Before You Even Think About Asking for Money

Here’s the truth that many folks don’t want to hear: if your paperwork and numbers aren’t in order, no bank manager or investor is going to take you seriously. Fundraising isn’t just about having a great idea—it’s about proving you know how to run it like a real business.

• Business Plan: This is your story, but told in numbers and logic. Investors want to see a clear market opportunity, how you’ll make money, and why your solution is better than the competition. Keep it sharp and avoid fluff.
• Financial Projections: Don’t throw random hockey-stick graphs just to impress people. Anyone who’s written a cheque before will see right through it. Show a realistic P&L, balance sheet, and cash flow for the next 3–5 years.
• Know Your Numbers: Sounds obvious, but I can’t tell you how many founders stumble when asked simple questions like “what’s your gross margin?” or “how much do you burn every month?”.
• Pitch Deck: If you’re aiming for equity investors, your deck needs to be short, sharp, and compelling. No one wants to read 40 slides of jargon.
• Legal Basics: Get your company registered properly—Private Limited, LLP, OPC, whatever suits your structure. Missing GST or license documents is a sure-shot red flag.

Ways to Raise Funds for Small Businesses in India

Let’s be real—no two businesses raise money the same way. What works for a tech startup in Bangalore might not make sense for a small manufacturing unit in Nagpur. The good news? India today offers plenty of funding routes, both traditional and modern, depending on where you are in your business journey.

1. Self-Funding: Putting Skin in the Game

Bootstrapping

Bootstrapping is just a fancy word for dipping into your own pocket. A lot of legendary businesses have been built this way. Zerodha, one of India’s most successful brokerage firms, didn’t raise external money for years and still dominated the industry.

• Pros: You’re the boss, no one is breathing down your neck, and no interest to pay.
• Cons: Growth can feel painfully slow, and you carry the personal risk.

Tip: Don’t mix your household savings and business accounts. It’s messy, and trust me, it leads to poor decisions.

Friends & Family

Ah, the most underrated funding route. Your first believers are often the people around you. But please—treat them like investors, not just relatives. Write things down, clarify whether it’s a loan or equity, and set repayment expectations.

Fun fact: OYO’s Ritesh Agarwal raised his first round from friends and family before SoftBank came into the picture.

2. Debt Financing: Borrowing the Traditional Way

Not everyone wants to sell equity. If you’d rather borrow and pay back with interest, here’s what’s available:

Bank Loans

Bank loans still dominate when it comes to SME funding. Options include working capital loans, term loans for expansion, or overdrafts to tide you over. The catch? They’re often conservative.

Some schemes that make life easier:

• CGTMSE: Government guarantees loans up to ₹2 crore without collateral.
• PSB Loans in 59 Minutes: A surprisingly efficient online system (though approvals can still take longer in reality).
• Top banks to approach: SBI, HDFC, ICICI, PNB. But be prepared with documents. Banks hate “storytelling”—they want proof.

NBFCs

Non-banking financial companies like Bajaj Finserv, Tata Capital, and L&T Finance are usually faster and less rigid. The flip side? Slightly higher interest rates. Think of them as a middle ground between traditional banks and informal lenders.

Microfinance

If you’re running a small shop in a tier-3 town or starting something in a rural area, MFIs can be a lifeline. That’s how Bandhan Bank originally started—tiny loans for tiny businesses.

Government Schemes You Shouldn’t Ignore

MUDRA Loans: Probably the most popular.

• Shishu (up to ₹50,000)
• Kishore (₹50,000–₹5 lakh)
• Tarun (₹5–₹10 lakh)

Stand-Up India: Tailored for women and SC/ST entrepreneurs.

Atmanirbhar Bharat Packages: Worth keeping an eye on for sector-specific credit schemes.

Pro tip: Don’t underestimate paperwork. Most rejections happen not because your business is bad, but because your file is incomplete.

3. Equity Financing: Selling a Slice of Your Company

Equity is where things get exciting—and complicated. You’re basically inviting someone else to own part of your company.

Angel Investors

Angel investors are individuals with money to spare and a taste for risk. They’ll usually come in early, maybe with ₹20–50 lakh, sometimes more. The best part? They bring advice and connections.

• Where to find them: Indian Angel Network, Mumbai Angels, or even LinkedIn.
• Example: Zomato’s first cheque came from Info Edge—and that gave them the credibility to attract bigger investors later.

Venture Capitalists

Venture Capitalists are the heavyweights. They write big cheques but expect big growth. Don’t approach them unless you already have traction, revenue, and a scalable model.

• Top names: Sequoia, Accel, Kalaari, Lightspeed.
• Example: Byju’s got early backing from Aarin Capital before global giants piled in.

Private Equity

If you’re already big (say, ₹50–100 crore turnover), PE firms can come in with massive growth capital. Lenskart raised $275 million from SoftBank, which helped them push globally.

4. Modern & Alternative Routes

The last decade has opened up a bunch of new-age options. Some sound risky, some are brilliant depending on your business type.

Crowdfunding

Platforms like FuelADream, Wishberry are for creative projects. If you’ve got a social or consumer-facing idea, this can work.

Equity Crowdfunding

Sites like LetsVenture connect startups with accredited investors.

Peer-to-Peer Lending

Faircent, Lendbox, and LenDenClub let you borrow directly from individuals. Interest can be higher, but approvals are faster.

Venture Debt

Great if you’re already VC-backed. Firms like Trifecta, Alteria help extend your runway.

Invoice Discounting

Platforms like KredX, Vayana Network—perfect if clients owe you money but you need cash now.

5. Apply for Grants and Participate in Competitions to Raise Funds

Not everything is about loans or investors. Sometimes, you can literally win money.

• Startup India Seed Fund: Grants up to ₹50 lakh for early development.
• MSME Grants: Vary by state, but are often overlooked. Worth checking the local DIC (District Industries Centre).
• Competitions: IITs, IIMs, and corporates like Mahindra run pitch competitions with prize money + visibility. A great way to test your idea, too.

6. Startup Incubator

A business incubator is a company that helps startup companies with a new business idea to develop by providing services such as management training or office space, and a platform for networking.

Business incubators differ from research and technology parks in their dedication to startup and early-stage companies. Research and technology parks, on the other hand, tend to be large-scale projects that house everything from corporate, government, or university labs to very small companies.

Most research and technology parks do not offer business assistance services, which are the hallmark of a business incubation program. However, many research and technology parks provide house incubation programs.

Check out companies like AdvantEdge, iCreate, etc, if you are looking for business incubators.

7. Use your Credit Cards to Raise Funds for Business

Smartly using your credit cards is another popular way of financing small business initiatives.

However, you must be careful about spending money on credit cards, as you have to pay a hefty amount of interest in case the repayment remains unpaid. You can check our post on the best business credit cards.

8. Install Loan Apps and Apply for Funds

Presently, there are many NBFCs and financial institutions that have launched mobile apps for the quick disbursal of various types of loans. The biggest advantage of these types of apps is that the loan sanction and the processing time are very short.

After installing the mobile apps, you just need to fill in some details and the amount you want. In a short period of time, you will get to know whether the fund will be provided or not. One can get a loan as small as Rs. 10,000 from these apps.

Read: Best Loan Apps in India for Instant Cash

Classic Mistakes People Make

• Signing term sheets without a lawyer (don’t do it).
• Chasing just money instead of smart money (an investor who brings strategy).
• Unrealistic valuations—either too high or too low.
• Not raising enough to hit the next milestone (this is surprisingly common).
• Vague answers on how you’ll use the funds. “Marketing” is not a plan.

After You Get the Money

Congrats, but now the real work starts.

• Be transparent. Share monthly/quarterly updates.
• Hit milestones. That’s how you build investor trust for future rounds.
• Manage cash flow. Fancy offices and expensive marketing stunts are silent killers.

Remember, money disappears faster than you think.

Wrapping It Up

So, what’s the “best” way to raise money? Honestly, there isn’t one. A home bakery in Jaipur might do perfectly well with a MUDRA loan, while a tech startup in Bengaluru may need VC funds to scale fast.

The real key is preparation: get your numbers right, know your story, and approach the right source at the right stage.

And here’s the good part—India has never been more supportive of entrepreneurs. From government initiatives to private investors, opportunities are out there. You just need to know where to look.