Top 10 Tips for Funding Your Enterprise
Entrepreneurship is in the air and exciting possibilities are waiting around the corner. With technology at the forefront and consumerism at its best phase, enterprising minds across the country are starting out with their own small businesses. Small and Medium Enterprises (SMEs) in India have grown manifold in recent times, but the lack of funding often acts as a spoilt sport. As the many startup enterprises come up each year, just as many fade away equally quickly for the shortage of funds or over dependency on their funding agencies.
Here we present a handy list of things to keep in mind while seeking funds for your SME.
The 10 Basic Dos & Don’ts
#1. Do check if there is any need for funding
First things first. Ask yourself if your business really needs funding. And if the answer is yes, make sure you are crystal clear about why you seek finances. This will help you decide on the exact amount needed and at what stage you should go scouting for funds to fuel up your business needs.
The need for funding can be to fulfill one or multiple or all of the following:
- Do you need to expand your business?
- Do you need to expand your product line?
- Do you need to expand your team?
- Do you need to shift to a new location / city or invest in a warehouse?
- Do you need to pump in investments solely for marketing initiatives?
#2. Do check your eligibility for receiving investments
With so many businesses needing investment in the market, financial institutions go about strictly evaluating your eligibility before passing on any loan amount that you require.
- Check if your company registration and all required licenses and paperwork are in place. You really do not want to give your investors the wrong impression with irregular documentation
- Check your CIBIL score. Credit Information Bureau (India) Limited, or CIBIL, is one of India’s first Credit Bureaus. It maintains records of all credit-related data of individuals and companies, including loans. Based on its data bank, CIBIL issues a credit report and a credit score. This is extremely important, as any bad loans in the past or delay in bill payments add up to a negative score. Ensure you have a healthy CIBIL score.
- Update your company’s balance sheet and other financial records and keep all bank statements in place.
#3. Do consider getting help from a crowd-funding agency
There are many agencies these days who help with crowd funding initiatives. Approach them. They will also help you with all your paper work and liaise on your behalf with funding institutions. Your appointment officer from these agencies will most certainly work towards helping you as he has a target to complete too, so it’s a win-win for both!
#4. Do approach banks
If you are not comfortable with the idea of seeking funds through an agency, approach the banks. The Government of India has initiated multiple schemes for startups in India and banks are obliged to provide the required funding to companies who fit the criteria laid by the Government.
#5. Do consider putting up property as collateral
If you have any property registered in your name, you can offer that up as a collateral to the bank to seek funds. The advantage is that the interest rate is such cases is as low as 10 per cent!
#6. Do keep your cash outflow in check
The cardinal sin while seeking funds is to show greater cash outflow than cash inflow. Make sure that you rectify this before seeking investments, in case your outflow is more than your inflow.
The components that determine your cash flow include:
- Rent for business premises
- Staff salary
- Bills
- Other miscellaneous items
#7. Don’t just borrow
Just because you have started a business and you think you might need money, does not imply that you go scouting for funds immediately. Funds that you receive too soon may harm your business acumen instead. You may end up spending on items that really do not need that kind of money. Carefully think through your need for funds before seeking any. Remember that there is money to be returned with interest, so the return on investment has to justify the funding.
#8. Don’t apply for a roughly estimated amount
More money isn’t always good for the business, especially if it is sourced from an external agency / institution / individual. No guesses and no estimates. Be clear on the amount you need and seek funding only for that amount.
#9. Don’t be careless about what is at stake
Read and re-read all the terms and conditions with your investors. If your property is put up as a collateral, be double sure. If your stocks are at stake as collateral, again, be very careful. Losing something to gain something isn’t always a good idea!
#10. Don’t forget to pay back on time
Neither too early nor too late. Check on the interest rates and if paying back early saves you some money, go ahead. But if paying back early makes no difference, then why deplete your funds untimely? You will be paying an interest either way. Use your funds wisely, and use them well.
These are the basic dos and don’ts to keep in mind when seeking funds for your startup business. Money matters, but its management matters even more.