Funding is an act of providing financial resources usually in the form of money to finance the need, projects, programs organised by organisation or government. Funding for start-ups help start-ups to nurture and nourish. Funding for business in India is a great mission for any business as it helps business to work more effectively. Generally funding is done to finance the organisation or government who need funds for business in India for execution of their ideas. Funding is also done for direct requirements of return of investment.
There are two ways of funding:
- Funding directly: When financial market directly lends to borrowers is called direct funding.
- Funding indirectly: Involvement of financial intermediary in organisation is indirect funding
Funding can be used for various purposes like research, launching a business, using the investments etc. Funding is done by financial intermediary, government etc. Start-up funding in India is done in direct or indirect form depending upon the nature of the organisation.
It covers objectives, strategies, sales, marketing and financial forecasts. Business plan describes the purpose, functioning, need, strategies, and objectives of the firm. To make a high quality business plan, business needs to keep few things in mind such as what is the purpose of doing this business, what is target that the business aims to achieve, who are involved in the plan, who all will execute, what strategies would be followed.
Need for preparing business plan preparation:
- Set specific objectives for managers
- Share your priorities, strategies and action plan
- To Attract new employees
- To have a close look on business evaluation
- Attract investors as it gives a clear view of business action plans
While making a Business plan preparation for new ventures or preparing a business plan for start-up venture one must keep in mind that who are the investors of the firm and what are the risks involved in it.
How to write business plan preparation:
- Mission statement and/or vision statement so you articulate what you’re trying to create;
- Description of your company and product or service;
- Description of how your product or service is different;
- Market analysis that discusses the market you’re trying to enter, competitors, where you fit, and what type of market share you believe you can secure;
- Description of your management team, including the experience of key team members and previous successes;
- How you plan to market the product or service;
- Analysis of your company’s strengths, weaknesses, opportunities, and threat, which will show that you’re realistic and have considered opportunities and challenges;
- Develop a cash flow statement so you understand what your needs are now and will be in the future (a cash flow statement also can help you consider how cash flow could impact growth);
- Revenue projections; and
- Summary/conclusion that wraps everything together
One should also keep in mind the strategies for marketing and sales to promote their business and how attractive the product and marketing of product is fascinate people in order to have maximum profit at minimum cost incurred.
A syndicated loan is a loan in which a group of lenders with same or different lending policies lend to a single borrower. This loan is usually taken by the borrowers who want large lump sum amount to be financed and hence is offered loan syndication that is many lenders lend money to borrowers on different or same interest rates and conditions agreed by all the lenders. Business plan preparation must include the detailed information about term loans, syndication loans etc so there is a more effective and efficient business plan.
Bank loan syndication is taken when borrower is in need of huge capital to invest. The borrower can be a corporate firm, organisation, or government who wants a financial intermediary to meet his need of huge capital. Syndication loan process involves leader who performs all the duties or administrator tasks of all the syndicate members.
Bank loan syndication process involves three main members
Bank loan syndication process involves request by borrower for loan to agent and negotiation between them takes place and then agent sends this request with all negotiation to lender and make negotiation and then all these negotiation with lenders are discussed with borrower and after they all agree a loan is granted to borrower by group of lenders who agree on all the terms and have common aspect.
There are 3 types of syndication loans:
- underwritten deal
- club deal
- best efforts syndication deal
A term loan is a monetary loan which is repaid on regular basis over a flow of time period. Time period for term loan may vary from one year to ten year but may last for 30 years. Interest rate involved in term loan is either fixed or not fixed which creates an additional cost to a person who has taken this loan. Small business organisations which do not have much funds for their production process, are mostly entitled to term loan for purchasing fixed assets. Term loans are usually given with the credit score check. Term loan has a financial obligation over fixed time period.
Bankers tend to classify term loan in two categories
- Intermediate loan: These loans usually run for less than three years.
- Long term loan: These loans usually run for more than three years.
The best use of term loans is for construction, major capital investment, such as machinery, working capital etc.
Factors involved in making decision about term loan are:
- Credit capacity
- Comfort with business plan
Term loan for business in India provide security, interest, maturity, restrictive covenants, and convertibility. From borrower’s point of view term loans are very cheap, controllable, and flexible as well as provides tax benefit to them whereas it involves risk and give obligations interest payments. From lenders point of view term loans are beneficial as term loans are secured, provide regular income and conversion whereas it is negotiable which reduces the benefit and have no control over affairs of company.
Term loans requirements:
- General credit consideration
- Collateral is usually required
- Approval process
CIBIL stands for credit India bureau India limited. CIBIL score shows the credit history that is how many credit cards are on your name, what is your bank statements, how many loans you have taken and much more. Before applying for any loan in banks the very first step is to check the CIBIL score check.
If your CIBIL score lies between 300 and 900 there is a chance of getting loans but empirical studies has shown higher the CIBIL score higher would be the chances to get loans. Lenders use this information for lending amount to individual or corporate so that they can be assured about whom they are lending, are they capable of repaying and many more things so that they could be secure from any adverse selection of borrowers. Credit score check is done to check the credit worthiness so that unsecured loans can be given easily to an organisation.
CIBIL scores play an important role in analysing the nature of borrower to be secured from moral hazard or adverse selection. CIBIL score acts as deciding factor when it comes to considering the applicant. It is both easy and convenient and the entire process is completed in a matter of minutes for a nominal fee.
Late payments, high number of credit cards issued, misuse of credit limit do affect the CIBIL score hence one should keep in mind the CIBIL score while initiating for loans by banks.
A basic breakdown of CIBIL in India:
* Timeliness of payments = 35%
* The amount of revolving debt in relation to the amount of your total revolving credit = 30%
* Length of credit history = 15%
* Type of credit used (installment, revolving, consumer finance) = 10%
* Amount of credit recently obtained and recent searches for credit = 10%
Unsecured loans refer to Loans which are issued on the basis of borrower’s creditworthiness rather than collateral. These loans are not secured as it does not serve any evidence against loans issued to the borrower. This type of loans are not beneficial for lender as he can commit a mistake of adverse selection while issuing loans whereas these loans are beneficial for borrowers as they do not have to keep anything in collateral for getting loan. Unsecured business loans are loans given to business who do not have any collateral against the loan and are given loan on the creditworthiness of their business. Unsecured loans are based on credit worthiness and this is checked by the CIBIL score or credit score check.
Lender should have complete information about borrower’s creditworthiness to prevent himself from loss. Borrower must have high credit rating for getting these unsecured loans.
These loans are best option for those who do not have much equity on their name for taking home loans or any other loan. The interest rate on unsecured loans is not tax deductable that is borrower cannot deduct tax from interest which is supposed to be paid to the lender.
Unsecured loans from banks may have high interest rate but are fixed and are applicable to the limited time period.
Since we know higher the tax involved higher is the rate of return and these unsecured loans are perfect example for this as loans issued without any collateral involves higher risk for lender but if lender has correct choice or analysis of creditworthiness of borrower then the return on such loans would be higher.
Unsecured loans for start-ups are important as they provide a platform to the start-ups to have loans without any collateral. Unsecured loans for start-ups in India gives an opportunity to the start-ups to nurture and nourish their idea.
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