Well, the culture of start-ups and entrepreneurship
is brewing in the country and financial sector (specially venture capital
world) has gained unparalleled experience of supporting this class of business
enthusiasts. There are plenty of successful stories about the people having
passion for entrepreneurship, volcanic spirit to conquer the markets and
benefiting the society with their innovative products and services.
Governments of India’s (GoIs) efforts in
this direction to encourage and support entrepreneurship are also laudable. Government
has launched many schemes like Stand Up India, Mudra Loans, and other MSME loans
etc. By effectively monitoring the schemes and ensuring successful implementation,
we must appreciate that GoI has walked the talk on this front. As per reports,
Government has ensured disbursement of about Rs.2.20 lakh crore during FY
2017-18 in support to MSME by way of Mudra Loans, and 2018-19 Budget has
increased this target to Rs.3 lakh crore. Budget 2018-19 has also made provision
of Rs.3794 crore for MSMEs for providing credit support, capital and interest
subsidy and innovations in this sector. There are other initiatives also like Fund of
Fund by SIDBI for (Corpus Rs.10,000 crore) contribution to various Alternative
Investment Funds (AIFs) for facilitating funding needs for Start-ups through
participation by VCs.
In a conductive policy environment, it
is also a fact that the banking industry in the country is facing highest levels
of NPAs (about Rs. 8 lakh crore) and there is defeating confidence in lenders
in supporting existing businesses. The credit off-take is tepid despite all
policy efforts are being made to encourage industrial lending. Banks in the
country have been tending in funding well established business models based on
traditional collateral/mortgaged based funding. Therefore, funding to fresh entrepreneurs
coming out of campuses does not come easy to them. It is in light of this that
the entrepreneurs starting their ventures in their 40s may have some advantage in
having the bankers on their side.
This club 40 has many traits which a
lender would be looking for in experimenting with start-ups lending. Mostly the
people coming in this class have huge 15-18 years of experience (EXPERIENCED) of
running factories/organizations, dealing with people, showing their leadership
skills (LEADERSHIP), experimenting with products/services/technology (TESTED) etc.
They have the advantage of knowing the deficiencies in the existing business
models and the right vacuum to be filled up. They carry a good market
reputation and relationships (NETWORKED) which support them in taking forward
their new ventures. Their maturity level also supports them in taking
calculated risks (MATURED). They have bitter taste of non performance and know
how to cope up with tough situations. They have knowledge of their market and possess
quality of being aggressive to capture the same (AGGRESSIVE). Many of the
entrepreneurs in this group also do not face issue of initial seed capital
support due to their available savings.
This class is expected to be able to
convince not only the investors but also the lenders with their credentials in
getting the right kind of capital for supporting their business ventures. The VCs
in the market have already experimented with the earlier class of freshly young
entrepreneurs coming out directly from their colleges. Now these VCs as well
PEs are looking forward to balance their investment portfolio with seasoned
experienced professionals aspiring to come out from their cabins.
With the corporate segment funding being
in low confidence, banks are eying other segments where they can develop business.
Affordable Housing and MSME are the key sectors which banks are targeting at
this juncture. The confidence given by Mudra Loans, Start ups Loans etc. have
created positive vibes where banks seems to be now looking beyond collaterals
for these small/medium loans and may experiment with ventures giving sustained
outcomes backed by these matured class of entrepreneurs. As compared to equity
capital, the debt capital has its own advantage for entrepreneurs since it does
not require them diluting stakes during the initial stage when it is valued
low, and provides freedom of experimenting without any outside intervention.
The 3Cs of Credit (Character, Capacity and Capital) seem to be favoring MENTAL
(Matured, Experienced, Networked, Tested, Aggressive, Leaders) of Club 40 with
not only banks but also NBFCs and other institutions coming forward with MSME/Start-ups
oriented debt products specially targeted towards entrepreneurs. Just to cite, there
were about 27 public sector banks, 18 private sector banks, 31 NBFCs, 31
regional rural banks, 13 state co-operative urban banks, 73 micro finance
institutions as of March 2017 partnered for Mudra loans, and the list is expected
to further grow. Hence, Club 40 @ MENTAL may look forward with lenders
supporting their ventures without the need for compromising and diluting stakes.
Budding entrepreneurs may follow some of the under given suggestions while
looking for financing from banks:
- Many banks have specialized branches
for SME/corporate lending. Some of the banks have even opened dedicated
branches for Start-ups. Hence, find out the right branch for your funding
requirement and approach the right officer.
- Find out if the bank has any specific
format/details in which proposal needs to be submitted. It will save lot of
time.
-
Find out if there is any specific subsidy/grant or interest relaxation etc. provided
under any central/state government scheme for funding of product/service/MSE in
which your firm can be categorized. Try to get financing under these schemes
which may save cost.
-
Submit an executive summary of proposal having about three to four pages that
should mainly provide basic details of the borrower, experience, cost and
sources of financing, repayment sources, key financials, key strengths and present
status.
-
Submit a detailed proposal that should explain about the management aspects,
market, technical aspects, projected financials along with assumptions and
basis for the same. Support proposal along with copies of quotations received,
any supporting report relied upon, registration certificates/licenses,
validation/viability/appraisal reports, three years IT-returns, valuation of
any collateral offered, client testimonials etc. Additionally, supplying soft copies of these
documents to the assessment officer may expedite processing.
-
Club 40 must emphasize their past experience, successful track record,
reputation and ability to drive up the proposed Start-up as future success
story.
-
There is growing interest in banks also in funding Start-ups in order to
develop future business and branding opportunities with them. Hence, while
discussing/submitting your proposal highlight advantages (in terms of future
business, cross sell opportunities, payroll accounts, retail business
opportunities and branding etc, if any) to the bank in associating with your
Start-up at its nascent/present stage.
- Do not rely on one bank/institution. Submit
your proposal to at least 3-4 banks.
-
Be in regular touch with the assessment officers and supply them any additional
required information.
