Resources for Small Business

Want to start a business and have no money? Raise money via these 4 ways

Micro, Small and Medium Enterprises are making a significant mark in the Indian Economy. Going by the huge numbers that support their case, there are approximately 45 million units that are producing over 6,000 products (which include traditional to high technology items) all over India. SME employ the largest number of people giving employment to approximately 101 million people in India. They account 45% of manufacturing output and 40% exports leading to contributing 8-9% to the GDP!!

In very simple words this is the best time for small scale entrepreneurs to start their business and invest into their dreams and realize it.

What are MSME?

These are enterprises who are categorized on the basis of the initial investment that has to be made in order to set them up. The categorization has been shown in the table below.

For Manufacturers

S.No  Enterprise  Investment(in plant and machinery)
1.  Micro           Less Than 25 Lakh INR
2.  Small  More than 25Lakh and less than 5  Crore INR
3.  Medium  More than 5Crore and less than 10  Crore

For Providers of Services

S. No Enterprise Investment(in plant and machinery)
1. Micro Less Than 10 Lakh INR
2. Small More than 10Lakh and less than 2 Crore INR
3. Medium More than 2Crore and less than 5 Crore

Now that you have a business plan ready, you need to estimate the cost of the initial setup. This will help you               identify  which enterprise you belong to.

With the mental picture clearing of how your business would be , the need to raise money and to be able to start it also arises simultaneously.  There are various ways in which you can raise money for your business.

Different Ways to Raise Money for Your Business

  1. From family and friends

  2. Business Plan Competition

  3. Crowd Funding

  4. Banks

Now let us look into each and every domain in more details to understand the pro and cons of using them as the seed funding options

1. Family and Friends – The best option when you are starting out

Gather Funding From Family

Gather Funding From Family

In the very nascent stage of business where even you are trying to build and rebuild an idea, amassing capital from friends and family seems the most convenient option. It does not include the risks involved in banks loans leading to debts neither does it require the added pressure that seed funding from venture capitalists brings. After all who will support you if not your family.

     The Advantages

  1. You know them beforehand, so the trust factor is already there.
  2. There is less pressure and the time given to you is also negotiable.
  3. More flexible repayment schedule.
  4. Obviously lower interest rates than any other sources.
  5. In extreme cases, the business still stays in the family

      How To Raise Money From Family

  1. ASK- and keep asking

If you keep waiting for someone to read your mind and figure out that you need money, then sorry it is not                   happening. You have to be vocal about your idea and keep brainstorming them in front of the people you want to       receive your funding from. Also look forward to those who have relevant idea of business in the family than                   plainly going forward and asking from the nearest rich relative you see.

    2. Be very passionate about the idea- Let them see the fire in you

You have to be very head strong  and your research work has to be in depth. Your family will be the first person to     whom you have to convince the idea of your business. So better do your homework. If they are not convinced then     remember it will be a hard time convincing anyone else on this planet. So elevate your pitch. Practice it before             you go and tell them.

     3. Give them Promissory notes- Try not to break the promise

Assure them that you are not playing around with their money and in due time you will return their money with           interests and also make it legally proven to be able to build their trust in you.

     4.  Ask for the bare minimum- and make the maximum out of it

Just because they agree to giving you money does not mean you can go on asking for each and every expense,             wanted or unwanted, from their pocket. Keep expectations minimum and also the stakes.

    5. Keep them posted about developments in that sector

The more they are informed about developments in that sector , the more will they be convinced about investing        into your business. If you can make them foresee the possibility of making it big, they would readily agree to                giving you the required amount.

But in the end do not hide from them , the risks involved because there is quite a possibility that your business           does not reach heights you are imagining it to reach. So to avoid discord and drama , tell them well in advance the     risks involved in business.

2. Business Plan Competitions – Are you ready for a good game?

Every year there are many business competitions held in India that help people raise money for their business. There have been many startups that have funded themselves in the first stage by winning business competitions. The key is that you need to have a clear idea about your business plan.

Business competition

Let the race begin

Why is participating in a Business Plan Competition Beneficial for you?

  1. Makes you understand the loopholes in your business plan- Risk evaluation before hand

When you participate in business competitions and present your plan, you are asked many questions about                   the feasibility of the plan. This gives you a clear idea and helps you gain a critical analysis of your business                   plan. So if in case you could not have sensed some underlying issue, it can be pointed out in the competition.

  1.  Increased Networking- Like never before

When you participate in business plan competitions, you come across so many people who are in  the same                   field. Apart from the judges, there are many potential investors attending such competitions. Also you can                   come in  contact with many influential and learned people. After all a major part of business is about                             networking with the right people.

  1. Prize Money- That’s precisely the point of participating

And above everything, it is the prize money that you need the most. The prize money for most of the                               competitions are sufficient enough to give a kick start

Here is a list of business competitions held that might help you receive initial funding as well as mentorship from investors.

S. No. Name Organization Eligibility              Focus
1. Next Big Idea DST, Intel, NSRCEL & IIMB Students, Entrepreneurs ·         Education

  • Electronics & Communication
  • Energy, Environment, Clean Technology
  • Manufacturing
  • Social Sustainable Ventures
  • Software and Web Services
2. DST-Lockheed Martin India Innovation Growth Program DST & Lockheed Martin Entrepreneurs, Engineers, Scientists, Inventors, Developers & Researchers     All Innovative ideas from any                  industry
3. Proto Proto.in Entrepreneurs       Any product based idea
4. Empresario – The Business Plan Showcase Centre for Innovation, Incubation and Entrepreneurship (IIM-A) Entrepreneurs Clean Tech & Renewable Energy, Telecommunication, Web Portals, Electronics, IT/ITES Services, IT-Software, Power
5. Intel® + UC Berkeley Technology Entrepreneurship Challenge Intel & UC Berkeley Students, Alumni from various institutes around the World
  • Semiconductors, Manufacturing, and Hardware
  • Mobile and Wireless
  • Digital Home and Consumer Electronics
  • Retail and Consumer Software
  • Enterprise Software and IT
  • Nanotechnology
  • Technology Based Innovative Ideas
6. Champion of Champions Intel & DST Winners of other business competitions in India, Incubatees, companies with non Venture Cap financing Technology based Ideas
7. Scholar Sparks Intel & DST Students of various colleges, universities in India Students with new technology business plans from engineering colleges, polytechnics, universities, science colleges, medical schools and B-Schools.
8. Eureka! IIT Bombay Students, Working Professionals CleanTech, Core Sciences, Telecommunication, Biotechnology, Web Portals, Electronics, Manufacturing, Service, Entertainment, IT-Software, Retail, Power, Banking/Finance, Hospitality, HRD, Consultancy, Food Processing, Tourism
9. Vishishth IIT Delhi Students UG or PG student in any recognised college/university can participate
10. Sankalp MSME MSMEs in India
  • Agriculture and Rural Innovations
  • Education for all
  • Environment & Clean Energy
  • Healthcare Inclusion
  • Highly Scalable Social Models
11. Business Plan Contest Harvard Business School Students, Entrepreneurs Business Ventures, Social Entrepreneurs
12. UDDYAM S P Jain Students from any institute working in teams Commercializing Innovations
13. Innovations Pune Pune Chapter of IIT Bombay Alumni Association Innovators Innovations in the form of processes, products and applications from varied fields such as medicine, agriculture, mechanical/electronic/chemical technology, IT products, etc.
14. TiE-ISB Connect TiE – ISB Entrepreneurs, Start-ups Any company
15. YESSS @ ISBA conference ISBA Entrepreneurs, Start-ups Any incubatee company of incubators across India who is looking to raise funds from professional investors
16. Ventura Entrepreneurship Cell , NIT Trichy Students / Working Professionals/ Entrepreneurs Rural Entrepreneurship , Women Entrepreneurship , Social Entrepreneurship , Biotechnology , Core Science , Telecommunication, Education , Electronics , Manufacturing , Nano Technology , IT-Software , Entertainment , Agriculture , Energy , Health , Biomedical , Web Portals , Consultancy , Food Processing

Courtesy:- VentureCentre

3. Crowd Funding – Let the world come to rescue

Now the first question that arises in your mind is what exactly is crowd funding

Crowd Funding is a process of raising monetary contributions from a large group of people via the internet.                 Basically you project your idea to a large group of people and make a pitch, if they believe in it or they think it is         worth an investment, they contribute to the project. In return you can give them merchandises or your products.Also there are some sites that have upfront listing charges whereas others take a part of fee as commission. So the situation is  also dicey if in case you are unable to raise the funds.

Crowd Funding

Crowd Funding

Why Should You Go For Crowd Funding

1. It cuts out the long documentation procedure involved in taking loans from banks, venture capitalists or angels.

2. You get a certain set of believers who believe in your idea since it’s inception and that is a great motivator.

3. Your idea is validated by many people who are willing to invest, so it gets a good chance of being supported by              people when it launches.

4. The risk is shared and so are the losses.

5.  It is the biggest globally acclaimed funding source.

These are the various sites that help in Crowd Funding

  • seedrs.com  (charges 7.5% fees for successful campaigns)

4. Banks – The last resort

Our  Government launched the Credit Guarantee Fund Scheme for Small Industries on 30th August, 2000 to remove the problem of collateral security.

“Under the CGTMSE Scheme the trust extends guarantee upto Rs.1 Crore per borrower for credit facilities sanctioned without collateral or third party guarantee. The loans sanctioned under Govt. Sponsored schemes  are also covered under the scheme.

The Credit Guarantee scheme (CGS) seeks to reassure the lender that, in the event of a MSME unit, which availed collateral free credit facilities, fails to discharge its liabilities to the lender, the Guarantee Trust would make good the loss incurred by the lender up to 75 / 80/ 85 per cent of the credit facility.”

(Source – Reserve Bank of India, MSME division)

All the private banks also give loans to MSME on lower rates.

But the problem with the banks is that there is a lot of delay with no guarantee of the loan being approved. A lot of paperwork is involved and usually banks do not like to risk their money on things that are yet to start. So this option is not that viable.

 

Eventually people time and again have come up with innovative methods for raising the initial funds. Did you face any roadblocks while raising funds for your business. Let us know or did you come up with something unique? Tell us your story and we’ll publish your story.

 


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Divya Sharma Dixit

Divya Sharma Dixit

Divya Sharma Dixit: Electronics and Communication Graduate bitten by the StartUp Bug.
From being an Engineer to a Journalist to Business Development officer and now Marketing, she always is on her toes. She takes life as it comes.
Writing is her mode of relaxation.
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