Tuesday 19th June 2018

    Funding Your Enterprise

    Locating the necessary finances to launch, and eventually to grow, your SME business is one of the biggest challenges in the sector. Entirely self-funding your business comes with the risk of putting all your own assets and savings at stake. Therefore, it is always perhaps wiser to seek funds from an agency once your business takes shape and moves into a more stable phase. Why and how, you may ask. We explain it here, Read On ..

    Why Seek Funds?

    Pumping in your own resources to support your fledgling business (or “bootstrapping”) is often the perfect way to fund your enterprise, when it is just taking shape. As you move forward, however, the capital requirement of your SME increases. The need to build a team, expand the reach of your business, move into a bigger office / manufacturing / warehouse space, purchasing the requisite equipment / machinery to support your capacity expansion—can all create a scarcity of capital. It is exactly at this juncture that you should expand your horizon and seek capital from lending agencies with specialized offerings for SMEs.  

    When Should You Seek Funds?

    Do not seek external funds at the ideational or experimental phase of your enterprise. It is best to utilize your own resources at this initial stage. For additional funds during this period, you may even consider inviting your family and friends—who are invested in you—to lend resources with the understanding that these may not be returned. Another great source of capital at this stage is crowdfunding.

    Crowdfunding is ideal in the early stages of your SME, when you do not yet qualify for bank loans and neither are you ready for venture capital (VC) funds. It is only when your small business reaches the next stage of growth, and you begin to see possibilities of steady revenues ahead that you should approach “angel” investors.

    Loans from Angel Investors

    Angel investors are usually a group of connected and affluent individuals who assess and invest in your business with expectations of certain returns on their investment. Here’s how they typically work:

    • Conduct a due diligence on your business to see if it meets their requirements
    • Invite you for a meeting to assess more about your business
    • In return, angels expect either convertible debt or ownership equity (often up to 30%)


    Some of the well-known angel investors in the country include Mumbai Angels, Hyderabad Angels and Indian Angel Network.


    Seeking Bank Loans

    These are the basic eligibility criteria while seeking bank loans, in later stages of your growing business:

    • Age: Banks usually lend loans to individuals between the ages of 24 and 60 years
    • Ability to repay loan: Check your CIBIL score. It is imperative that your credit card payments and other loan payments are cleared and there is no history of default
    • Financial record: Current account statements of at least 6 months of the running business
    • Necessary requirement: PAN card of the owner / owners of the business
    • Other necessary requirements: Company PAN card


    Seeking Funds from Lending Agencies

    Here we have listed a selection of top agencies who actively disburse funds to SMEs in India, with minimum paper work. You may explore other agencies, who are best suited to your particular business needs.

    #A. Bajaj Finserv : Bajaj Finserv offers MSME/SME business loans that come with low interest rates and a generously flexible repayment option. Business loans from Bajaj Finserv are part of a credit line facility that is approved for a certain credit limit and duration. The limit may drop along the tenor or remain constant throughout the tenor. Bajaj Finserv’s business loans do not require collateral, which means that you do not have to put your personal and/or business assets on the line to qualify for financing.

    #B. SME Corner : SME Corner offers the option of an unsecured business loan. It has been specifically designed for the sudden needs of small, growing businesses. The loan is usually disbursed in three working days. Unsecured business loans from SME Corner can be used for purchasing new premises, vendor and supplier payments, bulk inventory and new machinery. It can also be used for ERP solution implementation, marketing and advertising, as well as working capital for payroll management, among other business expenses. You will be told your loan eligibility almost as soon as you fill in the ‘no obligation loan’ application form online. They typically disburse loans from Rs. 5,00,000–30,00,000 for businesses that have been operating for over three years. CBIL score plays a very important role here and the minimum turnover of your company needs to be Rs. 25,00,000.

    #C. Aditya Birla Finance Limited (ABFL) : ABFL is one of India’s most reputed non-banking financial companies. It is a part of Aditya Birla Capital (ABC), which provides a wide gamut of financial offerings. With the help of ABFL Direct, you can avail a loan of up to Rs. 15 lakh with minimum paper work. ABFL too does not seek any collateral against your loan, and the entire process is usually online.

    #D. LendingKart: LendingKart is a financial technology startup in the working capital space. The company makes working capital available to entrepreneurs. It makes it particularly easy for SMEs to seek funds without the backing of any assets as collateral. Founded in 2014, the company has received funding to the tune of US$ 41 million from investors like Saama Capital, Mayfield India, India Quotient, and Bertelsmann India Investments. LendingKart utilises its proprietary algorithm, which uses over 2,200 variables to assess the creditworthiness of an SME applicant, and the necessary funds are usually transferred within a day. The entire process is transacted online, making it easier and accessible to young businesses.

    #E. DHFL: DHFL offers loans designed specifically for various SME businesses. The loans offered include business loans, loans to expand capital, loans for purchasing equipment or machinery, etc. The company offers flexible tenures and minimum documentation, making it especially convenient for SMEs.

    #F. CapitalFloat: CapitalFloat is an online lending platform, especially designed for funding SMEs. The company has a hybrid business model where it co-lends with banks and other financial marketplaces, contributing at least 10% of the loan lent to the borrower. The company is backed by popular venture capital firms like SAIF, Sequoia, Aspada, and Creation Investments Capital Management. Till date, CapitalFloat has received funding worth US$ 42 million.

    For most agencies funding SMEs for the long-term, the prerequisites include a good credit score, a minimum of two years of business operations, a minimum turnover of your business that vary from agency to agency—and above all, the confidence you have in your enterprise!

    - Authored by SAON BHATTACHARYA

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