Are you wondering how to fund your start-up? You can buy some books on this topic, take courses, and hire consultants. It’s complex and it changes quickly depending on the time, place and financing options. But for people who are considering this question for the first time, here are general rules and guidelines.
The importance of raising funds for small and medium-sized businesses
The SME sector plays an important role in boosting the Indian economy and contributes to the development of a country. There are 42.50 million SMEs in India. These registered and unregistered SMEs employ a workforce that represents 40% of the working population. For these SMEs, it takes a lot of hard work to keep an establishment up, running and growing. Money is the backbone of any business and also the handiness of funds is crucial. In the first year of operation, lack of funds is the most common problem faced by an SME and one of the main reasons for closure. There are different objectives with which an SME can raise funds for its business.
1: Start with a number
You have to start out by knowing how much you would like. It is not a random number, and it is not what proportion you wish. You’re trying to find the perfect place to begin, as outlined by the business plan.
The key goal as a businessperson to raise funds is expansion and growth over a few years. Funding is needed to increase the capacity of the business regarding raw materials, infrastructure, expansion of facilities, marketing and promotion, etc.
3: PURCHASE OF ASSETS
Assets are the lifeblood of any business. It could be money, equipment, land, building, etc. Fundraising simplifies the process of purchasing assets.
4: The main sources of funding are not what you think
The main sources of financing for new businesses are personal savings, personal debt, commercial debt, investments from friends and family, and outward investments. Debt means you pay it off or lose your collateral, and investing means you don’t pay it off, but investors own a share of your business. This does not include alternative means of obtaining seed funding.
5: SPEED UP WORK
Fundraising is important because it also helps speed up work by providing the working capital needed for the day-to-day running of the business. Other expenses include salaries of employees, expenses for maintaining warehouses, places of storage, production and manufacturing of goods, transportation, etc.
6: The use of savings and personal debt is very common
By far the most common sources of start-up finance are personal savings and personal debt. Most start-ups take a few thousand dollars. The benefits of this include not having to ask someone else and being able to get started quickly. The downside is that this money is in danger. If the business fails, the savings are lost. And the personal debt has to be paid off or you lose your credit rating and sometimes the house or the car or whatever.
7: DEBT RECONSTRUCTION
A business faces a financial crisis at one point or another. Rebuilding the debt is what comes to the rescue in such situations. Basically, it reduces and rebuilds the amount of debt and reduces the excessive burden on an entrepreneur.
There are different avenues of fundraising for an MSME/SME – private and public. Having a strategy is very important. There are a number of ways a business can raise funds, such as:
BANKS & NBFC
Most banks and NBFCs provide MSME loans to micro, small and medium enterprises. Government and private banks as well as NBFCs offer lucrative loan facilities and through this you can definitely get help. However, it is essential to go through various procedures, documentation and to ensure the healthy growth of your business to the financier.
Can I register Msme online?
The MSME registration method is totally online, paperless and supported self-declaration. Having PAN and GSTIN (In accordance with the applicability of CGST 2017 law and as notified by the Ministry of MSME empty S.O. 1055 (E) of 05 March 2021) is required for Udyam registration
FRIENDS AND PARENTS
Getting facilitate from friends and relatives to spice up your business is so profitable. Investing from friends and family is the most common type. Do it with care and with good legal help, because it is a minefield. It can also become terribly acidic if not done right. Do your homework on this option. Start with this article on funding friends and family. It also allows you sufficient time without stressing the loan amount.
Crowdfunding consists of raising funds with the help of a large number of people, in particular for an innovative business plan, a social cause, etc. Lately, he has given birth to many ideas. If you are confident in your business skills and believe it will do the company good, then your chances of raising funds through crowdfunding are guaranteed. Convincing people and making them visualize your goal will certainly help you to a great extent.
8: Bank loans require collateral
Banks aren’t allowed to lend money to start-ups without assets to pledge. Due to this problem government has introduced CGTMSE scheme
CGTMSE Scheme for MSMEs
To operationalize the program, the Indian government and SIDBI established the Micro and Small Business Credit Guarantee Fund (CGTMSE). The CGTMSE has set up a new product “Hybrid Security” to cover as a guarantee the part of the credit not covered by a pledge.
The fundamental objective of CGTMSE is to encourage new entrepreneurs to create SMEs and MSMEs, considered the bulwark of the Indian economy, by benefiting from unsecured loans from eligible financial institutions. The guarantee covers the borrower’s failure to repay the advance.
9: Angel investing is rare
Angel investing is for a select few companies that offer a reasonable chance of future returns over a few hundred thousand dollars. Sometimes its numbers are in the tens of thousands. True investors typically want scalable, defensible, high-growth companies that can be sold in 3-5 years, with experienced management teams.
10: Venture capital is even rarer
Venture capital is like angel investing, but with professional managers of other people’s money. It is more difficult to obtain and rarer. It takes strong leadership teams with a good track record, very high growth potential, defensible and scalable businesses.
To conclude, money is the lineage of SMEs, therefore funds should be used to stabilize your position and help you achieve your financial goals. Systematically analysing its growth and thus having sufficient funds for its future development is the key to the success of an SME.