Small and medium enterprises also known as MSMEsare seen as crucial drivers which turn the economic wheels of an ambitiously developing country like India. With more than 50 million small businesses in India whichin totality form up to one-third of the national GDP, the time has come for the financial policymakers to provide ample loan schemesto revitalise these small industries.
This will have the added effect of improving the macroeconomic conditions in the future.It should not be forgotten that small businesses form the backbone of the economic resilience of India. Know about how to increase CIBIL score score fast.
Need to Provide Support to Indian Small Businesses
The hands of public sector banks are tied when it comes to providing adequate MSME loan schemesas they have to meet their quota and make sure the quantum of credit flows to all sectors of the economy.
- There should be continuous search for creative funding options. Some of the creative funding options include Angel investors and Venture capitalists.
- It is not an understatement that innovative financial options are the foundational structures for playing arole in ensuring the success of small businesses in India
- The final goal of providing MSME loan schemes and credit facilities is to create a means for small businesses to make sure that it isan important economic engine of India’s development.
- India’s economy will be on the path of development and approach the Western economic models only when the small businesses of India are properly taken care of by providing unique and focused credit solutions.
Here’s a list of the top creative ways to raise capital for small businesses:
Business loans from non-banking financial corporations
Affordable interest rates are the differentiating factor of NBFCs, compared to other financial organisations. Providing credit with lucrative business loan interest rates and favourable repayment conditions has increased the popularity of NBFCs and made them the architects of the modern development of small enterprises.
Access to working capital is one of the determining factors when it comes to sustainability the existing competition. NBFCs offer a synergistic advantage of using automatic technology and other financial requirements so as to eliminate the paperwork and make sure that the businesses have access to immediate business funds so that their financial commitments to sub-contractor and vendor can be honoured.
Due to the intense competition between different FIs to act as financial credit partners to the ever-increasing small enterprises, then NBFCs have come up with innovative financial instruments such as flexi loan facility that equips the owners of the business with the ability to withdraw the funds to meet any urgent requirements which are well below the approval limit.
- Equity financing may sound to be complicated financial jargon but on the surface is a very practical method of raising funds for SMEs and other businesses.
- So Equity financing involves the transfer of shares of the business in exchange for capital infusion.
- Angel investors are the architects behind the concept of equity financing in which they invest their own funds depending on the analysis of the key financial parameters of the small business.
This method of financing saves entrepreneurs from the trouble of complicated business loan interest rate calculations and strict credit repayment schedules. The only drawback with this method of financing is that that the owners of the small business need to part with the percentage of ownership of the company. However, in the longer picture, the infusion of Angel investor capital can expand the business into various vertical levels, improving the personal fortunes of both the business owners as well as the Angel investors.
As the name suggests, crowdfunding entails the aggregation of capital and other financial resources by small businesses from different players in the market. This is known as peer-to-peer lending of funds to ensurethe harmonious functioning of small-scale businesses.
The first step of this financing option is put into motion, and the business owners of the small businesses approach thousands of investors in the financial networks route.
Crowdfunding can be defined as a democratic version of equity financing. The chances for robust financing of the small business are dependent on the assistance of the busy business owners and the resilience index of the supply chain systems and logistics and operation department of the individual business.
Establishment of product
If a small business has only one product in its repertoire, then it’s most convenient to raise the required money by pre-selling it. In doing so, you will be under complete control of the inventory and make sure that your production is proportional to the demand. This also has the added advantage of avoiding a situation where you may find yourself with the warehouse of unsold goods and not sure when the sales will take place.
This method of fundraising also creates a sense of responsibility in the business owners in developing state of the art products knowing the fact that many customers will judge the product and their opinion go a long way in enhancing the sales of that particular product in the future.
In the present global supply chains, the ability to sell your products is directly proportional to your capabilities to pay your bills. This brings us to an attractive Win-Win situation between the businessman and the vendor. If both of them can enter a mutual negotiation for longer-term longer payment terms, then their successful partnerships can result in future fruits.
In many cases, invoices should be paid within 30 days of the delivery of services.If business owners can negotiate tactfully regarding extension of this repayment term subject to providing certain concessions to the vendors, then there may be adequate cash levels to maintain an efficient business cycle.
The way ahead
Entrepreneurs may face many challenges starting from product design, finding the right operations process, and identifying the right markets. But all of them pale in comparison with the need to find funding opportunities to begin the new business. Business loan schemes with lower interest rates are the most accessible methods of funding. But now numerous other innovative methods are gaining popularity to kick start a small or medium scale business.
This list of creative funding options is helpful for entrepreneurs to plan their financial investments in tune with the changing winds of credit off-take, global supply chains, and logistics.
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