Easy Paths to Follow for Funding Your New Ventures
This is a common statement I hear nowadays that I’m fed up of my routine job and want to do something of my own. Some of them even try their luck but only few are successful due to the fact that they opt for the right methods of funding their new ventures. Following the right funding method and strategy is the only key to unlock a better future of any business. There are various banks, venture capitalists and angel investors in the country that are known to offer monetary aid to small and medium scale business units. However, their operations are not always commendable. These institutions ask for a collateral security before offering funds to an enterprise. Banking institutions are now focusing on working capital loans in the long run for SMEs, thereby encouraging the growth of small and medium scale enterpris.
Here are few options for your reference.
Collateral Free Loans for SME
Government of India and SIDBI had set up “Credit Guarantee Fund Trust for Micro and Small Enterprises” (CGTMSE). On the basis of CGTMSE guidelines banks offers collateral free loans up to Rs. 1 crore to realize the areas of those entrepreneurs who have viable Projects/ proposals but lacks adequate collateral security to offer. The best part is that you can gather funds for working capital requirements, expansion plans and purchase of machinery.
Term Loans Simplified
Term loans are also known as basic commercial loans which has a specific term of maturity and normally a fixed rate of interest. In such a loan, the interest and principal are set up carefully as periodic payments which are to be repaid in a given time period. Term loans are divided into three major categories: short term loans, long term loans and intermediate loans. Short term loans are working capital loans which are taken up by several small scale enterprises. Intermediate loans are used for funding machinery and other crucial assets. As far as long term loans are concerned, banks hardly grant them to small scale enterprises but when they do they are meant for the purchase of real estate or major equipment. Long term loans are given in exchange of a collateral security.
Overdrafts
Overdraft stands for overdrawing a sum of money from a current account. In simple words, the amount withdrawn by the account holder is more than the sum deposited in the account. In case the amount withdrawn is within a specified limit, then the interest is charged at a stipulated rate. However, if it exceeds the limit, a higher rate of interest can be charged. Business houses go for overdrafts when they are in need of temporary funding for crucial operations.
Information on Letter Of Credit
SMEs looking for conditional bank guarantee apply for a letter of credit. It is a bank obligation that clearly states that in case the documents showing that products have been sold or services have been delivered, are offered within a given time period then a suitable amount of money will be reimbursed to the seller. A letter of credit offers several benefits to both the parties involved. A buyer gets complete assurance that the bank won’t make any payments unless all the terms are fulfilled by the seller. On the other hand, the seller is guaranteed that s/he will receive the entire payment as soon as the documents are presented before the bank.
Bill Discounting
Bill discounting is a process through which SMEs acquire cash on credit sales or large purchases made by the sales bill at the bank. Bill of lading, truck/railway receipts or challans need to be presented to the bank in order to authenticate the financial transaction that took place. Small scale enterprises are able to make tender profits on discounting of bill and this is one of the reasons why this method is so popular.
Introduction to Women Entrepreneur Funding Schemes
Women entrepreneurship is a huge source of growth in the Indian economy. Most of the women entrepreneurs have been able to offer different management related solutions to the society. Several governmental schemes have been started for funding women entrepreneurship such as TREAD and MSE-CDP. Several corporate houses, too, are lending their support towards women who are capturing the market in a great way.
Just like other types of loans and funds, business loans are also offered on the basis of the credit worthiness of an enterprise. The reliability and repayment capacity of the SME is taken into consideration by the banking institution before granting a loan. This is where a business needs to step up and maintain their financial records and statements in the right manner. It is important to understand the perspective of the bank while applying for a loan. Banks offer loans to companies who maintain their records and have a sound background and reputation. At the end, a clearly laid out business plan can help you in getting proper funds for your new small or medium scale venture.
