For any MSME, fundraising is always a daunting task and timely availability of funds can make or break any business. For example, during the summer season, small ice-cream plant manufacturers look to raise money to manage the seasonality of demand.

However, uncertainties in the fundraising process and cost make it challenging. Knowing the following things beforehand can make fundraising easy for entrepreneurs and can increase the chance of a positive outcome. 

Purpose of the Loan- When it comes to funding a business, it is imperative to have a plan for deploying the capital. Most of companies raise capital for asset acquisition, debt consolidation, working capital and growth capital. Remember, any debt raised from the financial institutions has to be repaid in periodic instalments and defaulting on them raises a serious issue. Hence prior planning is essential before going for a fundraising. 

Credit History- Credit history is one of the most important parameters to obtain a loan and one should always know the individual and the company's CIBIL periodically. A good credit history makes debt capital cheaper and easier to procure. In case you already have a bad credit history, please go to a financial consultant to improve the score. Although it takes time, but it will ensure your future debt capital is cheaper and hassle-free. 

Monthly Cash Flow - A more transparent view of how cash is flowing from operating and business activities is important for financial institutions to decide whether to extend a loan and agree on an installment plan. Make sure to route most of the transactions through banks or payments apps as it gives a lot of credibility on cash flow. This also helps in getting cheaper capital. 

Banking Transactions - In today's digital era, our every move leaves a digital trail which makes everything traceable. Hence, a business owner must keep the banking transactions clean of inward cheque bounces. 

Collateral- If you need a big loan and for a longer tenure, be ready to mortgage collateral. All entrepreneurs should have mortgage free assets. These assets come in handy while raising funds. Collateral can be an independent house, apartment, shares, FD etc. Ensure the collateral has no title clearance issues in terms of ownership. 

Govt Schemes- The Government has issued various schemes to help small businesses. Please make use of them based on eligibility. Some of these schemes are CGS Scheme, Mudra loan scheme and Startup India scheme. 

Published On : 17-06-2019

Source : Economic Times

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