Acquiring finance is a major consideration for any business and it can seem to be a daunting task at times. However, with careful planning and consideration, it would be easier to arrange for acquisition of finance through the right sources. An entrepreneur needs to have a clear view of the various methods of finance (internal & external) to select the appropriate one.
It is also very important to know about the funding pattern of different industries and the amount and extent to which help is available in the industry. There are some key issues the firms face for acquisition of finance which are stated in the below mentioned points.
This assignment has been done with a view of acquiring entrepreneurial finance in setting up an SSI firm in India. Also, mentioned are the institutions where the Government extends finance facilities through various schemes. It also shows the problems and probable solutions with suggestions to curb the difficulties in acquiring finance.
Problems of Entrepreneurial Business finance
1) Acquiring loans from institutions and government bodies – The process of acquiring loans takes a long procedure, which is generally complicated. The co-laterals associated with it are also proving to be a problem.
2) Preparing a feasible business report – It is one of the prime requirements of acquiring a loan. It has to show how feasible the idea is in terms of providing the revenue required to pay back the loan and the interest associated with it. It has to cover all the aspects of the firm. It doesn’t matter how innovative the idea is, the aim remains on when the profits come in. There lies limited specialist knowledge of products and sectors in some of the reports which is particularly the area of concern to the authorities providing finance.
3) An accounting balance sheet – The institutions giving loan aren’t really interested in the 55 page accounts but they need the proper 4 pages of accounts which show the exact estimated cash flow and the places where the money would be invested in. They want to make sure there is proper allocation of resources so that the loan is re-paid on time. Ignorance of application procedures for Debt and Equity are very common problems in not getting the required finance.
4) Expected profit – The banks or loan providing individuals need to know the expected rate of growth and profit that could be reaped through accounting techniques and formulas and other means. It can be shown in a forecasted form the ratio’s which are expected to be. Unfavourable and unrealistic figures and ratio’s are what the loan providing institutions do not want to see in the presented forecasted accounts.
5) Cash flow forecast – It basically shows where the cash is going to be allocated. A lot of companies have their cash flow which exceeds the investment levels and are barred from getting the required loans.
6) Budgeting – Management of capital is a major problem. If there are no forecasted budgets and how the capital should be used and how much percentage of capital will go in buying capital assets and how much percentage will go in working capital, then it is seen as a proposed problem. The provided accounting sheets need to have a budget and cash allocation figures.
7) Unpopularity of equity capital – Equity capital isn’t the most common form of attaining finance. It is slowly gaining popularity and would be a good source to attain finance from public sources. However, the small firms need help from institutions who can guide them on how to invite the public to subscribe and the whole procedure.
8) Professionalism in submission of application – The firms with a more concrete resource base are more biased to submitting the right type of application for the loan and securing it because of the correctness of the type of loan applied for. The SSI sector needs assistance from institutions which guide them to apply for the right kind of loan at the right bank.
9) Uneducated entrepreneurs – There are a lot of finance opportunities available and grants available which are good sources of securing finance but are not known to many entrepreneurs because of lack of advertising of the firms and institutions giving it. The main reason, however, is also because of the entrepreneur not being educated about the sources of finance.