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business finances 2018-05-15

Business Financing Source for Entrepreneurs

This Article Includes Few Fundraising Sources Through Which A Budding Entrepreneur Can Source For The Funds.

By Sneha SantraContent Writer

An entrepreneur may face the hurdle of getting finances to start a business and increase the probability of success. Depending on the services or products provided, your company might require thousands of rupees to open for business. Fortunately, an array of finance sources is available. However, you must select the source based on your personal financial standing and that best meets your needs. Here are few fundraising sources through which an entrepreneur can source for the funds.

Owners Equity

This is the owner’s fund contribution in business. It is also called risk capital. This is the most reliable source of funding in business as the money is raised from the entrepreneur’s past savings. It can also be a contribution from friends, relations etc. This puts less pressure on the entrepreneur even if the business failed. The important thing is that there is no commitment of repayment on the entrepreneur.

Loans

This can be sourced from the private sources or financial institutions such as microfinance houses or commercial banks, it is a facility given to the entrepreneur with the obligation to pay the sum and accrued interest at an agreed date. Loans may not be the best source of financing a new business, because the payment put pressure on the entrepreneur and the business, where it could not be totally avoided entrepreneur should be careful in taking it. As an alternative to this option, a starter is an advisee to take up an apprenticeship to gather knowledge as well as money to start a business. Types of Loans and Facilities are as follows:

-Short term loan: This is the type of loans with a repayment period of less than six calendar months. This is the popular type offered by micro banks and venture capitalist. They are usually sourced to finance working capital and ventures with short-term gestation. They usually attract payment of interest at a high rate.

-Medium term loan: The duration of payment for this facility does not exceed twelve months. Both commercial banks and microfinance institutions are reluctant to grant this type of facility because they need fund to run their own businesses and will avoid anything that will tie down their article of trade (money).

-Long-term loan: small-scale business entrepreneur may not be able to access this type of loan because of stringent conditions attached to it. This type of facility is repaid after two years or more. It is sourced for capital projects, usually provided by specialized banks such as EXIM etc.

-Loan from Credit/Thrift cooperative societies:  These associations/organizations are formed to provide credit at affordable/concessionary interest rate compared to what obtained at the money market to their members. Small-scale entrepreneurs are encouraged to belong to their associations to enjoy this facility.

-Overdraft: It is an arrangement between the bank and its customers to withdraw above the balance in the account. Microfinance and commercial banks offer this type of facility which is subject to renewal. This facility allows an entrepreneur to withdraw more than what he/she has in his account. It is usually for few days or weeks and is approved by the appropriate authority in the bank

-Equipment Leasing: This involves an arrangement between the financial institution and its clients, whereby the institution agreed to purchase a fixed asset such as equipment/machine for its client who repays the cost of this equipment and interest accrued on it over an agreed period of time. This arrangement checkmate diversion of credit to other uses.

-Trade Credit: In this, the payment for goods purchased is postponed until an agreed date. This type of trade arrangement lies between sellers and buyers.

Grants

Government and non-government organizations sometimes provide grants to potential entrepreneurs for their business. This is an allowance that a government or an organization gives to support a start-up or a small scale business in the country. For Example, SIDBI (Small Industries Development Bank of India), provides grants to start-up or small scale business in India through their various schemes.

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