How to Set-Up an Enterprise - Finance and Working Capital to Start Business
Arranging Finance
To start and set up their business
all SSI units need monetary support. Before seeking
fund estimate the cost including that of working capital
required for a minimum of 6-8 months and always keep
a provision for buffer. you can take help of an CA or
concerned officials in Entrepreneurship Development
Institutes to work out the total financial cost of your
project. Decide the form in which you are going to raise
the capital i.e. should it be equity finance, debt finance,
loans or a combination of these.
The financial assistance in India
for SSI unit is available from a variety of institutions.
The important ones are
SIDBI:
Small Industries Development Bank of India (refinance
and direct lending)
SFC's: State
level Financial Corporation e.g. Delhi Financial Corporation
(DFC), Gujarat State Financial Corporation (GSFC).
NSIC: National
Small Industry Corporation.
Small Industry Development Corporations
of various states.
Commercial/Co-operative Banks.
DIC: District
Industry Centre.
In addition, large term loans
are also available from All India financial institutions
such as IDBI, IFCI and ICICI. The EXIM Bank
(Export Import Bank of India) and the ECGC (Export
Credit and Guarantee Corporation) are Federal agencies
which provide credit for export/import and exim guarantees
respectively.
This need for finance can be classified
into following types:
Long and medium term loans
Short term or working capital
requirements
Risk Capital
Seed Capital/Marginal Money
Bridge loans
Long and medium term loans are provided
by State Financial Corporations, SIDBI and State Industrial
Development Corporations. Banks also finance term loans.
This type of financing is needed to fund purchase of
land, construction of factory building/shed and for
purchase of machinery and equipment. The term loans
are secured against mortgage of assets such as land,
building, machines, equipment and other stocks. The
short term loans are required for working capital requirements,
which fund the purchase of raw material and consumable,
payment of wages and other immediate manufacturing and
administrative expenses. Such loans are generally available
from commercial banks.
There is, however, a SINGLE WINDOW
SCHEME, for SSI units. Under the scheme, one agency,
either the bank or the financial institution, funds
both the term loan and working capital requirements.
This scheme applies to all SSI projects with project
cost up to Rs 50 Lakhs. The working capital loan is generally
secured against
Pledging of stocks, raw materials
and finished goods,
Advances against work-in-progress
(WIP),
Advance against bills.
For loans from financial institutions
and commercial banks a formal application needs to be
made. The details of documentation that need to be provided
with the loan application are shown here.
Documentation for Loan Application
Balance Sheet and Profit Loss
Statement for last three consecutive years of firms
held by promoters
Income Tax Assessment Certificates
of Partners/Directors
Proof of Possession of Land/Building
Architects estimate for construction
cost
Partnership deed/Memorandum and
Articles of Associations of Company.
Project Report
Budgetary Quotations of Plant
and Machinery
A sanction or rejection letter is
issued by bank after its assessment of the application.
After receiving a sanction letter applicants need to
indicate in writing their acceptance of terms and conditions
laid down by FI/ Banks.
Subsequent loan is disbursed according
to the phased implementation of the project.
In today's environment there are other
choices apart from commercial banks and Government owned
financial institutions. These options include venture
capital funds and non-government finance companies.
