Key TakeAways
- Multiple funding sources are better than one
- Government schemes offer significant opportunities.
- NBFCs are game changer for quick funding.
- Technology has made it easier for everyone to get access to money or funding.
- Prepare your documents before applying for a business loan to avoid any rejection.
The SME business sector of India contributes significantly to the country’s GDP growth, yet access to the funds remains one of the biggest challenges for small and medium businesses. With the rapid evolution of the business world, entrepreneurs need to understand the diverse funding options available and choose the right strategy for their business growth.
Whether you are a tech startup, a manufacturing company, or a service provider, securing sufficient funding can make the big difference between scaling a business successfully and moving slowly.
Why Choosing the Right Funding Option Matters
In 2025, Indian SMEs (Small and Medium Enterprises) are booming from tech startups to traditional manufacturing, small businesses are powering economic growth. But even the most promising ideas can fail without the right financial support.
Whether you are just starting out, scaling up operations, or planning for an IPO, choosing the best funding strategy is key to long-term success. In this blog, we’ll guide you through the 14 most practical and proven ways to fund your SME business in India, including both traditional and modern methods.
Let’s dive into the best SME financing options available today.
Top 14 Proven Ways to Fund Your SME Business
1. Self-help: Bootstrapping
Self financing SME or Bootstrapping implies that you fund it using your own money, savings or early sales money. This is a self financing option and you are the sole decision maker of the business and this is not interfered with as compared to SME business loan.
If your business needs only a small amount of capital initially, bootstrapping is a smart and risk-free way to start.
Best for: Early-stage businesses with low operating costs
2. Traditional Bank Loans
Banks remain the essential source of capital for Indian SMEs. When you apply for an SME loan, banks evaluate your credit history, business model, and repayment capacity. SME loan interest rates in 2025 usually range from 8.5% to 15%, depending upon your creditworthiness and the bank evaluation.
Public and private sector banks offer various products like working capital loans, term loans, and project financing.
Best for: Businesses with a stable financial history
3. Incubators
Startup launchpads that offer funds + mentorship. An incubator is a program, usually organized by a university, government agency or corporation to help support early-stage startups. They usually give seed capital, workspaces and useful mentoring.
You may not get large funding upfront, but the mentorship and ecosystem can open bigger doors later.
Best for: Tech, education, and innovation-based startups
Examples include: Atal Incubation Centres, IIM-A CIIE, and T-Hub
4. Accelerator Programs
Accelerators are boot camps that provide short-term and intensive programs to boost startups. These 3-6 month programs combine mentorship, networking and seed capital with the aim of making startups ready to take bigger funding rounds.
Indian accelerators like Techstars India, Microsoft Accelerator, and sector-specific programs provide structured support for rapid scaling. Participants typically receive ₹10-25 lakhs in seed funding in exchange for 6-8% equity.
The accelerator program works best for startups with a specified business model, seeking quick business growth.
5. Private Funding Sources
Seeking for private funding may involve personal networks like family, friends, or applying for a loan from a private lender. This private funding option is often the first step of new entrepreneurs who don’t have access to formal credit systems or simply don’t want to risk their assets.
Private funding is a good option in the initial stages of business but it comes with involvement of relationships. Mixing money and relationships requires a clear understanding and professional approach to avoid conflicts.
Private lenders may offer higher interest rates in comparison with banks but taking loans from private lenders benefit you in handling short term needs when formal financing is not available.
6. Crowdfunding Platforms
Crowdfunding allows you to raise a small amount of money from a large number of people through online fund raising platforms. In India, platforms like Ketto, Milaap, and Impact Guru, these platforms help you raise crowdfunding for various purposes.
This funding requires a compelling story, strong marketing, and an engaged community. B2C businesses with specified products perform better than B2B businesses in crowdfunding.
7. Government-Sponsored Programs
Startup India, MUDRA, and Stand-Up India are designed for SME Financing Loan. Government schemes are a lifeline for Indian MSMEs, offering collateral-free loans, subsidies, and guarantees.
Some popular ones include:
- MUDRA Loans (up to ₹10 lakhs)
- CGTMSE (guarantees for bank loans)
- Stand-Up India (for women and SC/ST entrepreneurs)
- Startup India Seed Fund Scheme (up to ₹20 lakhs for ideation)
SME loan eligibility under government schemes are more flexible than traditional bank loan eligibility criteria. These government initiatives aim to promote entrepreneurship among underrepresented groups and boost MSME growth.
Best for: New and underrepresented entrepreneurs
8. Financial Institutions
Public and private sector banks together with financial institutions offer structured SME financing solutions. This may include term loan, working capital loans, and equipment financing.
SME loan rates depend on the lending institutions criteria, loan amount, and borrower’s credit profile. Traditional banks may offer lower interest rates but private sector banks offer faster service and quick processing time.
Unsecured business loans are gaining more popularity among established businesses with strong credit history. Unsecured loans don’t require any collateral but may carry higher interest rates.
9. Non-Banking Financial Companies (NBFCs)
Quick disbursal and flexible repayment options. NBFCs like Bajaj Finserv, BigMudra, and Tata Capital offer fast, paperless business loans. Many SMEs prefer NBFCs due to minimal eligibility requirements and low documentation. Apply online and get approval within 24–72 hours
The process to apply for an SME loan through NBFCs is easy and usually digital with less paperwork and faster loan approval time. In the era of AI, many NBFCs are integrating AI into their application process and BigMudra is one of them.
Working capital loan SME options from NBFCs nowadays are very attractive for businesses needing quick funding for their cash flow, inventory, expansion or seasonal requirements.
Best for: Small business owners who need fast funding
10. Microfinance Institutions
Micro finance institutions (MFIs) cater to very small enterprises and entrepreneurs in the rural areas who might not be allowed to receive loans in mainstream banks. The institutions offer high-touch service, flexible loan repayment plans and small-ticket loans.
MFIs are familiar with the local markets and they are able to evaluate creditworthiness using alternative procedures. Although interest rates are usually higher than bank loans, the interest rates are convenient and offered as personalized services and hence are very useful to micro-enterprises.
The funding source is quite effective with small traders, artisans and service providers located in tier 2 and tier 3 cities that require working capital loans in their daily operations.
11. Angel Investors
Angel investors are high-net-worth individuals who invest their personal funds in early-stage startups in exchange for equity. India has a growing community of angel investors, both individual and through networks like Indian Angel Network and Chennai Angels.
Angels typically invest ₹25 lakhs to ₹2 crores in startups showing high growth potential. Beyond capital, they provide valuable mentorship, industry connections, and strategic guidance based on their experience.
Angel investment works best for scalable business models with strong founding teams and clear market opportunities. Investors look for businesses that can potentially provide 10x returns within 5-7 years.
12. Venture Capitalists
Large funds backing high-growth startups. VCs offer significant capital (₹5 crore and above) but expect strong governance and exponential growth. They’re best for tech, fintech, and innovation-led businesses with proven traction.
Top VCs in India: Sequoia Capital India, Blume Ventures, Matrix Partners
Best for: Startups looking to dominate large markets.
13. Initial Public Offering (IPO)
Coming in Public through IPO allows well established SMEs to raise funds from public markets. Earlier, it was only reserved for the large companies, however, regulatory changes have made it easier for small SMEs to list their IPO on stock exchange.
Platforms such as BSE and NSE allow smaller companies to list their IPO with reduced compliances and lower cost. Companies can raise ₹10-25 crores through SME IPOs.
If you are planning to launch an IPO then you must keep this in mind; an IPO requires a strong financial performance, powerful governance systems, and professional management. This process is time consuming and expensive but benefits you with large amounts of capital and enhanced credibility.
14. Peer-to-Peer Lending (P2P)
Digital lending without middlemen. In P2P lending, you raise funds from individual investors through online platforms like Faircent, Lendbox, and i2iFunding.
Interest rates vary by your credit profile, but loans can be disbursed within a week. The application process to apply for an SME loan through P2P platforms is usually faster than traditional banks. Interest rates depend on your credit history but they can be competitive with traditional lenders. P2P lenders work well for unsecured business loans and working capital requirements.
Best for: SMEs needing unsecured business loans quickly
Conclusion
Raising funds for your SME in 2025 is easier than ever, if you know where to look.
From bootstrapping and bank loans to P2P lending and government schemes, the Indian startup ecosystem is full of diverse financing options. Choose the method that best fits your stage, goals, and comfort with risk.
And remember, the best funding source is not always the biggest, it’s the one that aligns with your long-term vision.
FAQs
What is the best way to fund a startup?
There’s no single best method. For early-stage ventures, bootstrapping, angel investors, or government schemes work well. As you scale, consider VCs, NBFCs, or even an IPO.
Is 1% equity in a startup good?
It depends on the company’s valuation and growth potential. In high-growth startups, even 1% can be worth crores over time.
What is the 20 lakh grant for startups in India?
The Startup India Seed Fund Scheme provides up to ₹20 lakhs for product development, proof of concept, and market entry. More Info Here
Who is eligible for a startup grant in India?
You must be:
- Recognized as a startup by DPIIT
- Less than 10 years old
- Have an innovative product or service
How much money is given in the Startup India scheme?
It varies by stage. Seed fund (₹20 lakh max), incubation support, and credit guarantee schemes are available. You can also apply for MUDRA and CGTMSE support.
