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Financial food for thought
Debt vs. Equity Funding: Analysing the Pros and Cons for Startups
Obtaining the necessary credit at the appropriate time is crucial for any business endeavour. Initial capital and working capital are required to run any industry smoothly. Large scale industries have never had any difficulty in securing credit for their enterprises, because of the perception that they offer the highest employment opportunities to the general population.
The National Minorities Development & Finance Corporation (NMDFC) has numerous financial funding schemes in place to encourage entrepreneurs from the Minority population in setting up their business units. One such scheme is the Term Loan Scheme – Credit Line 2 under the Self Employment Lending Scheme.
All businesses require steady cash flow to maximise growth opportunities. One of the biggest hurdles faced by micro, small and medium enterprises (MSMEs) is that it’s difficult to get business loans from traditional lenders due to lack of collateral and other assets.
A business loan is one of the biggest financial commitments you will have in your life, which means you should be prepared to bargain for the best offer. In India, there are many banks that offer term loans, small business loans and many of them are negotiable. Therefore, you will have to negotiate for the best during the loan process.
Having a strong business concept and the passion to drive this business plan into reality sets the foundation to run a successful business. Another factor that is as important to run a business is money. With many lending institutions offering a lot of credit options, it is not difficult to get a business loan. But the difficulty to get any loan approved by the lender is when you have a bad credit score.
Start-ups and entrepreneurship are buzzwords in current times. It may be a hobby or passion that takes the form of a business, or it may be the need to solve a customer pain point; there can be many ways of starting off. Initially, every venture starts off small. It's only with a lot of perseverance and hard work that a business scales heights.
Being in debt is common and there is no shame attached to it. Anyone can go into debt at some point in life, including the rich. Not all debts are bad; some debts can be taken for your investments such as a home or plot, and some can be unavoidable such as medical emergency or mandatory financial obligations. Whatever they may be, it requires a meticulous financial strategy to pay them off without any hassle.
No matter how successful an idea is, a business needs finances to grow, expand and make the venture profitable. Businesses can be of two types: one that produces goods for sale and the other that offers services to its customers. A good example for the production-based business could be companies producing anything from airplane to a pin, while service business could be anything like a courier or a food delivery service.
A household or an individual needs credit to fulfill some of their needs and purchase certain high-value assets. What holds good for an individual holds good for an enterprise or a business too. A business needs finance for both short term and long term growth. The funds needed for running the business may come from various avenues like promoter's own funds, venture capitalist, angel investors, from public funding or from loans, etc.
According to Global Entrepreneurship Monitor (GEM) report, the entrepreneurship levels are stable and increasing gradually across the globe. There are about 100 million start-ups launched every year worldwide. With the easy access to business loans from banks, NBFCs and online lenders, starting a new business is possible for anyone who has the determination to succeed as an entrepreneur.
Establishing and running a business require continuous inflow of cash, both for long-term and short-term use. There are different avenues of financing available for a business owner depending upon their need; be it the duration of financing required, interest rate charged, the ease of obtaining the finance, etc.
Finance is crucial for building any business. As a business grows, so does its need for finances to meet its requirements. All the finance required for building a business cannot be brought in by the promoters alone. Hence, there arises a need for credit.
World Intellectual Property Organisation (WIPO) recently published that India is ranked as 57th most innovative country in the world. Initiatives such as ‘Make in India’ by the Government of India has spurred the growth of business across 25 sectors.
It is common knowledge that the business entity and individuals representing the business are two different entities; their personal actions do not affect the running of the business. Similarly, the business credit scores and personal credit scores are different, right from the way they are computed to the way the scores are being represented.
There are various types of businesses being run to satisfy a wide range of needs. It may be a manufacturing company or a service-based business or a business that acts as a market place, the need for finance is a common line that binds all of them.
Finance and a business go hand in hand. As with an individual, a business may also come up with requirement of credit at any time. As funds required for a business would be in greater proportion in comparison to an individual's requirement, the loan requirements vary as well.
Credit is a great tool that can come in handy at any time, be it a personal or a business need. As individuals might need loans to fulfill many of their needs and wants, so is the case with businesses. The need for credit in business is more pronounced as the credit requirements are of a larger magnitude, which is difficult to be met out of personal resources.
Entrepreneurism is on the rise in India. Campaigns such as Make In India and the encouragement for startups are making the business environment very conducive. However great an idea may be, it cannot take off without monetary backing. There are many sources of funding available to a business owner.
We live in the era of startups. Individuals are turning entrepreneurs with wonderful business ideas. However, any business needs cash to grow and build operations. There are various types of funding available to a business which could include private equity, venture capital funding, crowd-funding, self-funding, overdrafts, and loans.
A credit card is a tool that helps the user to make purchases and pay for them later. Yes, of course, it is easy and convenient. But can some start a small business with a credit card? Though there are credit cards for business purposes just like there are credit cards for personal usage, completely relying on a credit card to start a small business may not sound feasible. However, let us explore the options of using a credit card for financing a small business.
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