Financing & Funding
What is Alternative Funding?
Alternative funding can be defined as:
“Non-traditional form of funding that allows small business owners to get cash flow without traditional banking assistance”
It includes:
- Loans/Grants
- Non-Banking Finance Companies
- Venture Investments
- Competitive Platforms
Reasons To Pursue Alternative Sources
Lack of assets to offer as collateral for loans
Less credit history
High interest rates on traditional sources
Comparatively less time consuming process
Comparatively less documentation required
Lack of assets to offer as collateral for loans
Less credit history
High interest rates on traditional sources
Comparatively less time consuming process
Comparatively less documentation required
Alternative Funding Options:
BUSINESS GRANTS
- issued by state/government without any obligations of repayment
VENTURE CAPITALISTS
- companies/individuals that invest in small business in return of some share/profit
CROWD FUNDING
- Gaining small amounts of capital from large number of individuals
PITCH COMPETITIONS
- business plans are proposed to the investors to gain pitch
ONLINE LENDING
- many companies/individuals lend capital through online platforms
Benefits Of Alternative Funding
- Low Interest Rates
- Flexible Terms & Conditions
- Longer Repayment Duration
- Fast Approval
- Transparent Pricing
What Is Cash Flow?
Cash flow is defined as:
“The amount of money entering and leaving your business over a given period of time”
Cash flow management is defined as:
“Monitoring/ management of the money entering and leaving your business over a given period of time”
Why Is It Important?
- It gives a picture of cost vs revenue
- Keeps a check of paying bills whilst making profit
- It balances the timing and amount of cost and revenue
- It helps to forecast potential risks in cash flow
- It helps in drafting future plans for the company
Objective Of Cash Flow Management
MAXIMIZE VALUE OF FUNDS
- invest in long term projects
- diversify market & customers
- monitor cost per unit
MINIMIZE COST OF FUNDS
- enhance productivity
- use cost effective methods
- invest in technology
Cash Inflow Vs Outflow:
Cash Inflow
- Payment From Customers
- Bank loans
- Interest On Savings/Investments
- Shareholder Investments
Cash Outflow
- Purchase Of Raw Materials
- Salaries Of Employees
- Purchase Of Fixed Assets
- Loan Payments
- Taxes
How To Improve Cash Flow?
Following are some of the ways to manage your cash flows effectively:
- Receive payments from customers on time
- Negotiate a right deal for investments
- Pay off debts timely to avoid debt cycle
- Timely order stock to avoid burden
- Check the market fluctuations while purchasing raw material
- Use marketing tools to make profit
Loans & Grants
Loans are borrowed from financial institutes or individuals, with an intent of repayment with interest.
Grants are financial awards, given to a company/individual to achieve his goal, with no intention of repayment
Why Loan ?
Advantages
- Frequently available through various platforms
- Less competition while applying for loan
- More credit limit
Disadvantages
- Less flexible terms of conditions
- Interest rates applied
- Must be repaid
- Shareholder Investments
Why Grant?
Advantages
- No obligation to repay
- No interest rates applied
- Credibility due to competitive nature
Disadvantages
- Limited opportunities
- Limited credit available
- More expectations for outcome
Options Available
Loan
- Banks
- Non-Banking Financial Companies
- Individuals/Entities
Grants
- HEC
- USAID
- SMEDA
- STATE BANK