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My experience in my own venture and working for few successful
and some not so successful ventures has taught me a thing or two about managing
Cash Flow (Start-Ups discard heavily funded VC firms here as they have a different
model altogether). Business requires fund for 3 activities primarily viz.
Setting Up Business, Managing the Monthly Operations Cost and Working Capital
(For eg. to buy Raw Material etc). In my humble opinion expansion and growth
fund has to be generated by business and supported by debt route.
Most of the entrepreneurs set the business from their own
savings (It included things like Register New Company, Website, Business
Registration/Tax Registration etc.),
Monthly Operations would include things like Office Rental,
Basic Team, Internet, Promoters Expense etc. Ideally speaking business should
have cash for atleast 1 year when it starts and at any point of time, it should
have cash for atleast 6-8 months of operations. You can read our blog for more
information (http://ca4you.in/blog/2016/04/19/factors-to-keep-in-mind-before-register-new-business-7-point-cheat-sheet/)
The biggest challenge comes when a start-up needs some urgent
working capital (to purchase raw material to process a new order, or pay
advance to some vendor for a confirm order etc. etc.). This is where a lot of
start-ups faces the real heat and have to actually shut shop. In India we do
not have any avenue wherein startups/SMEs etc can raise working capital and
these ventures gets in clutches of loan shark.
There is (some) good news for such ventures and there are
certain avenues now which could come for their rescue. We would enumerate a few
of them in this blog here:
1- NBFCs: India has thousands of NBFCs who work dedicatedly towards
providing working capital loans to startups without any collateral. The monthly
interest rates they charge are in range of 2% p.m. and the paper work is
minimal. Most of the NBFC either look for atleast 1 year of business record
(like Balance Sheet, Tax Returns etc.) or ask for some collateral. Typical loan
size depends on your Annual Turnover (25-30%) or size of the contract.
2- FinTech: Fin-tech is the new kid on block who are raising funds left
right and center. Most of these Fin Tech works as an aggregator model and have
hosts of HNIs (High Networth Individuals), NBFCs etc. on their platform which allows
start-ups to have more options and even NBFCs to choose projects from host of
projects. The rate of interest is again in range of 2% p.m. and the requirement
is also less stringent as loans are given to companies who are 4-6 months old. Typical loan size depends on your Annual
Turnover (25-30%) or size of the contract.
3-
PSUs: PSUs have long being
trying to systemize loans for SMEs and start-ups and various schemes are
launched by banks. The issues are not so friendly approach of the bank staff,
paper work, lack of clarity etc. But if you have a good contact in banks, it
would make sense to try to this option as interest rates are generally low
(1.25% p.m.) and Loan size is also typically high. This is different from overdrat
policy which is commonly used by bigger companies.
4-
Mudra Loan and
Government Schemes: Government is currently giving a lot of emphasis on creating a
start-up ecosystem and funding features high up on the agenda. Through Mudra
Loans and various other schemes, government is trying to provide micro loans to
fund small ventures. Of course paper work would be cumbersome and loan amount
would be small but any money is helpful for a start-up
5- Factor Invoicing: A fairly successful and prevalent option in West, India is
warming up to this sector. The modus operandi of factor invoicing works like,
If you have a pending payment of 1 Lac from a firm (you have rendered the
service and raised the invoice) and there is delay in payment or the payment is
supposed to be remitted after 30 days and you need payment urgently, then you
can go to such Factor Invoicing companies who will pay you 95k immediately (for
eg.) and then would receive the payment of 1 Lac from company direct. The
industry is in nascent stage, documentations are lengthy but still is worth to
explore.
Hope this blog was informative
for you. Get further updates on not only Accounting/Book-Keeping/Government
Compliances but also about all new rules and regulations/opportunities for funds which will be your industry specific
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