Quick answer: Most small and early-stage businesses in India are best funded in this order: your own savings and early sales first, then a bank loan backed by a government guarantee (Mudra, CGTMSE, Stand-Up India), with NBFC or MFI loans only when a bank says no. Equity from angel investors or VCs suits only businesses built to grow very fast and sell to a large market, and it costs you ownership. Match the money to the business you actually run: loans for equipment, stock and working capital, equity only for products that need years of investment before they earn.
The options at a glance
| Option | Best for | What it costs you | Main risk |
|---|---|---|---|
| Own savings and early sales | Testing an idea, very small start | Your money and its opportunity cost | Losing personal savings |
| Family and friends | Small amounts, quick start | Often low or no interest | Strained relationships |
| Bank loan (with government guarantee) | Running or ready-to-run businesses with a clear repayment plan | Interest and fees set by the bank | Default hurts your credit record |
| NBFC or MFI loan | When banks refuse or need speed | Usually higher interest than banks | Repayment pressure, over-borrowing |
| Government schemes and grants | Specific sectors, new units, DPIIT-recognised startups | Paperwork, time, margin money | Delays, strict conditions |
| Angel investors | Early startups with high growth potential | A share of ownership | Loss of control, misaligned expectations |
| Venture capital | Startups that can scale very fast | Larger share of ownership, board seats | Pressure to grow at any cost |
| Crowdfunding | Consumer products or causes with a story | Platform fees, rewards to backers | Campaign fails, legal limits on equity |
| Revenue-based financing | Businesses with steady, trackable revenue | A share of revenue until a capped amount is repaid | Squeezes cash flow in slow months |
Own savings, early sales and family money
When it fits: you are testing whether customers will pay, or the start-up cost is small, as with many home-based food, tailoring, beauty or tutoring businesses.
Why it helps later: a few months of sales through a business current account becomes your strongest evidence when you later apply for a bank loan.
Risks and how to manage them: decide in advance the most you will put in, and keep a separate emergency fund. With family money, write down whether it is a gift, a loan (with a repayment plan) or a share in the business. Unclear arrangements cause more trouble than the amount itself.
Bank loans backed by government guarantees
For most women founders who already have, or are about to start, a revenue-earning business, a bank loan is the main route. Several schemes exist so you do not need property as security:
- PM Mudra Yojana: loans to non-corporate, non-farm micro and small businesses in four categories up to ₹20 lakh. See our guide to Mudra loans for women.
- CGTMSE: a guarantee that lets banks lend to micro and small enterprises without collateral up to ₹10 crore. For women entrepreneurs, the cover is 90% (scheme features effective 1 April 2025, published by SBI).
- Stand-Up India: composite loans above ₹10 lakh and up to ₹1 crore for a new (greenfield) enterprise run by a woman or an SC/ST borrower. SBI states a minimum margin of 10% of project cost and repayment over up to 7 years with a moratorium of up to 18 months.
- RBI rule on collateral: under RBI’s amended MSME lending directions, effective 1 April 2026, banks must not take collateral on loans to micro and small enterprises up to ₹20 lakh.
Costs: interest is set by each bank, usually linked to an external benchmark plus a spread, and there may be processing and guarantee fees. Ask for every charge in the sanction letter.
Risks: a loan must be repaid whether or not the business does well. Missed payments damage your credit score and future borrowing.
Fits best when: you can show the business will generate enough cash to cover instalments. You will usually need a project report; see our guide on writing one a bank will accept.
NBFC and microfinance loans
Non-banking financial companies (NBFCs) and microfinance institutions (MFIs) often lend faster and with less paperwork than banks, and reach borrowers banks find too small or too new. Many MFIs lend to women in groups.
Costs: NBFCs and MFIs borrow at a higher cost than banks and take on riskier borrowers, so their interest rates are usually higher. Rates and fees vary widely between lenders; compare the total cost, not just the monthly instalment.
Risks: taking several small loans from different lenders at once can quickly become unaffordable. Check the lender is registered with the RBI before you sign, and read the repayment terms in full.
Fits best when: you need a small amount quickly, a bank has refused, and you are confident of steady income to repay.
Government schemes and grants
Beyond loan schemes, some programmes give money that is partly or wholly non-repayable:
- PMEGP (Prime Minister’s Employment Generation Programme): a margin money subsidy on bank loans for new micro units. Bank of India lists maximum project costs of ₹50 lakh for manufacturing and ₹20 lakh for business or service units, own contribution of 10% for general and 5% for special-category applicants, and subsidy of 15% to 35% of project cost depending on category and urban or rural location.
- Startup India Seed Fund Scheme: for DPIIT-recognised startups incorporated not more than 2 years before applying. It offers up to ₹20 lakh as a grant for proof of concept, prototypes or product trials, and up to ₹50 lakh through debt or convertible instruments for market entry and scaling, disbursed through selected incubators.
- State schemes: many states run their own subsidies and startup policies for women. Terms vary by state, so check your state industries department.
Costs: time and paperwork. Subsidies are usually released through the bank and conditional on the unit running.
Risks: delays, and plans that depend on a subsidy that arrives late or not at all. Do not build your cash flow around money you have not received.
Angel investors and venture capital
Angel investors are individuals or groups who invest their own money in early startups in exchange for a share of ownership. Venture capital (VC) funds invest larger amounts from pooled money, usually after a startup has shown strong growth.
When it fits: a business that could grow many times over in a few years, typically technology-led, selling to a very large market, where investors can expect a sale or listing to earn back their money. Most kirana shops, boutiques, parlours, tiffin services and local manufacturers do not fit this model, and that is not a weakness.
Costs: you give up a share of the company, and often agree to investor rights such as board seats or approval over major decisions. You will usually need a private limited company to take equity investment.
Risks: pressure to grow faster than the business can handle, dilution in later rounds, and losing control. Take legal advice before signing a term sheet.
Crowdfunding
Crowdfunding means raising small amounts from many people online. In India, the common forms are donation-based (for social causes) and reward-based (backers pre-order a product or get a reward).
When it fits: a consumer product with a strong story and a ready community, or a social enterprise.
Costs: platform fees and the cost of delivering rewards. Check each platform’s fee terms before launching.
Risks: many campaigns do not reach their target. Selling shares to the public is regulated under company and securities law, so do not offer equity through any platform without legal advice.
Revenue-based financing
Revenue-based financing (RBF) providers give you money upfront and take a fixed share of your monthly revenue until an agreed total amount is repaid. Payments rise when sales are high and fall when sales are low.
When it fits: businesses with steady, trackable revenue, such as online stores or subscription businesses, that want growth money without giving up equity.
Costs: the total you repay is higher than the amount you receive. Terms differ between providers; work out the effective annual cost before you sign.
Risks: a share of revenue leaves your account every month, which can squeeze cash flow, and RBF is a newer product, so read the agreement for penalties and personal guarantees.
FAQ
Q: I have no property. Can I still get a bank loan?
A: Yes. Mudra loans and CGTMSE-covered loans are designed for borrowers without collateral, and RBI’s directions bar banks from taking collateral on loans to micro and small enterprises up to ₹20 lakh from 1 April 2026.
Q: Is there a scheme only for women?
A: Stand-Up India is reserved for women and SC/ST borrowers starting a new enterprise. CGTMSE gives women-owned units higher guarantee cover (90%) and a 10% discount on the guarantee fee.
Q: Should I take investor money instead of a loan?
A: Only if your business can grow very fast and you are comfortable sharing ownership and control. For most small businesses, a loan is cheaper in the long run.
Q: How do I avoid loan fraud?
A: Apply only through a bank branch, the JanSamarth portal or a lender you can verify as RBI-registered. Never pay an “agent” to get a government-backed loan approved.
Q: Do I need to be a company to get funding?
A: Not for bank loans or most schemes: proprietorships and partnerships qualify. Equity investment from angels and VCs usually requires a private limited company.
Official links
- CGTMSE: https://www.cgtmse.in
- SBI Stand-Up India page: https://sbi.bank.in/web/business/sme/sme-government-schemes/sui
- JanSamarth loan portal: https://www.jansamarth.in
- Startup India Seed Fund Scheme: https://seedfund.startupindia.gov.in
- Bank of India PMEGP page: https://bankofindia.bank.in/govt-schemes/prime-minister-employment-generation-programme
- RBI press release on MSME lending amendments: https://www.rbi.org.in/scripts/BS_PressReleaseDisplay.aspx?prid=62190
Last checked: October 2026. Rules, limits and fees change; confirm with the official source before you apply. This guide is general information, not legal, tax or financial advice.
Sources: CGTMSE consolidated scheme features published by SBI (October 2026); SBI Stand-Up India scheme page (March 2025); RBI press release on MSME lending amendment directions (February 2026); Bank of India PMEGP page (October 2026); India Science and Technology portal, Startup India Seed Fund Scheme (October 2026); Sakhi Sangini guide to PM Mudra Yojana (October 2026)
