Are You Looking To Begin Your Own Start-up?

Prime Minister Narendra Modi launched the much awaited Start-Up India initiative in January 2016. As part of this initiative, start-ups would not have to undergo any inspection for the first three years of operation. There would also be no tax on the profits earned in the first three years, says an article published in NDTV in January 2016. PM Modi has also urged banks to help start-ups with finance. This initiative is expected to give the much required boost to the start-up ecosystem in India.

Various Types of Credit Facilities Available to Business Firms

Finance is a big hurdle when it comes to setting up your business. Limitation in funds can force entrepreneurs to alter their plans. If you are planning to set up your own business, you must be aware of the various types of financing that you can apply for at various junctures of your entrepreneurial journey. Business loans are both unsecured and secured. They may range from SME loans to project finance.

1. Term Loans – You can take term loans to fund your start-up as well as for future financial needs. You might be able to raise a significant amount against collateral. This type of credit facility offers flexibility of repayment tenure, making it less burdensome for enterprises. This type of credit can also be used to buy new equipment to enhance production.
2. Working Capital Loan – This is taken to meet day-to-day expenses. Working capital refers to the difference between current assets and current liabilities. When the working capital ratio of an enterprise is less than one, there is a high chance of falling into a debt trap and eventually slipping into bankruptcy. A working capital loan in such a situation helps you pay your suppliers on time, pay employee salaries and pay off other short term debts.
3. PProject Finance – This type of credit facility is specifically meant to finance a specific project. You may present an estimate to the bank, along with the project details. Banks may also check the credentials of the individuals heading the project. This type of loan is offered across a wide spectrum of sectors, including infrastructure, manufacturing, hospitality, education and more.
4. Commercial Real Estate – This type of funding is given in order to acquire commercial properties, be it office space, warehouses or factories. The property to be acquired might act as collateral as well.
5. Invoice Discounting – Invoice discounting refers to a service offered by banks and NBFCs, through which you can cash-in future invoice receivables. The bank offers you the money that you are expected to receive against your sales invoices. It charges a fee for the same. Later, the bank collects the sum on the pre-decided due date directly from the buyer.

Project finance, term loans and other types of credit facilities can help finance day to day functioning as well as expansion and growth. You can consult your financial advisor to know more.