financing the fund requirements (india)
TRANSCRIPT
Financing The Fund Requirements
Presented by: Syed Mohsin Raja. Digital & Social Media Strategist /Consultant,
Founder: Social Media Club - Assam
Syllabus Covered for Business Development & Project Management
(BBA & MBA)Assam Rajiv Gandhi University of Cooperative Management,
Sibsagar, Assam
Why Money?
Money Makes Money
A Business basically requires finance to:
- commence its operations, - to continue its operations,- for the expansion and growth.
Why Finance?
The Cash Flow
Plan the Flow
Indicates:1. The requirements of finance, 2. Sources for raising the finance,3. The application of funds.
Financial planning for starting a business begins with estimating the total amount of capital required by the firm for the various needs of the business.
Financial Plan
Financial Planning is an ongoing process to help you make sensible decisions about money that can help you achieve your goals.
Financial Planning
1. Financial Objectives,2. Nature & Size of the business,3. The brand image & credit-worthiness of
the business,4. Growth & expansion plans,5. Capital market trends,6. Governmental regulations.
Financial Plan Considerations:
Money/Funds? How? Where?
Sources
Types of Funds:
Funds
Short Term Mid Term Long Term
Short Term Funds:
Short Term
Trade Credit Instalment Credit
Ac. Receivable Financing
Customer Adv.
Commercial Paper Bank Credit
Trade Credit:
• The credit which the business gets from its suppliers.
• Fund doesn’t come in the form of Cash.• It facilitates the purchase of supplies without
immediate payment.• No interest is payable on the trade credits.• Period of the Term Credit depends upon:
Trade Credit:
Trade Credit:
• Period of the Term Credit depends upon:
– the nature of product, – location of the customer, –degree of competition in the market, –financial resources of the suppliers, – the eagerness of suppliers to sell his stocks.
Instalment Credit:• Credit from the equipment suppliers.• Payments extended over a period of 12 months
or more.
• Concept of instalments.• There is an interest on the instalment credit,• The ownership of the equipment remains with
the supplier till the final settlement or instalment completion.
Accounts Receivable Financing:
• Also known as Factoring.• An asset-financing arrangement.• The enterprise uses its receivables (money owed
by customers).• Usually advances up to 60 per cent of the value
of the accounts receivable.• Period of factoring is 90 to 150 days.
Advance from Customers:
• Generally for Heavy Set-ups/Enterprises (not for start-ups).
• Demanded by the enterprise while accepting orders.
• The customer advance represents a part of the price of the products.
• A Cost free source of finance.
Commercial Paper:• Introduced by RBI in 1989.• A promissory note.• An unsecured money market instruments.• Not for start-ups.• Meant for highly rated corporate borrowers.• Issuing organization must have the value of 10cr.• Issued in denomination of Rs. 5 lakhs or multiples.• Eligible issuers must get Credit Rating from either Credit
Rating Info Services of India Ltd. (CRISIL), or the Investment Info. And Credit Rating Agency of India (ICRA), or the Credit Analysis and Research Ltd. (CARE) or any such agency as specified by RBI.
Commercial Paper:
Bank Credit:Types of Bank Credits:
- Short Term Loans,- Overdrafts,- Clean Overdrafts,- Cash Credit,- Discounting of Bills,- Advances against goods,- Advances against documents of title to goods.
Long Term Fund:
Long Term
Capital Market Loans from FI Foreign
SourcesRetained
Profits
Debentures
Capital Market:- Practiced by both org.s and individuals.- Fund is raised by issuing shares & debentures.- ‘New issue market’ for new funds.- Equity Capital and Preference Share Capital.- Source of permanent capital.- Equity shareholders are practically the owners.- Higher Cost. (As dividends are not tax
deductible and uncertain)
Loans from Financial Institutions:- Most preferred long term financial assistance in
India.- Available at different interest rates.- Offered by Commercial banks, Cooperative
banks, Regional Rural Banks, Financial Institutions.
- Also from Govt. Departments & Corporation.- Employment generation schemes.
Procedure to Borrow Funds in India:
The borrower should follow the following procedures:1. Dully filled up prescribed form,2. Photographs, ID & Address proofs, (Land doc.s)3. SSI Registration Certificate,4. NOCs,5. Trade Licence,6. Project Report,7. Market survey report,8. Quotations for machineries & equipment,9. Factory Layout,10.Marketing assurance letter.
General/Formal
Foreign Sources:
1. Foreign collaborators,
2. International Financial Corporations,
3. NRIs.
Retained Profits/Earning:
- Most easily available in the long run,- A general reserve from year to year,- Generally invested for expansion,- Almost no risk,- Control of the present owner doesn’t get
diluted.
Venture Capital Financing:- Is the financing of new high risky ventures promoted by
qualified entrepreneurs,- Venture Capitalists invest by purchasing Equity or Debt
Securities,- Apart from funds, VCsalso supports in strategy,networking, managementetc.- In India, the concept of Venture Capital funding was
introduced in 1988.- Major developments started since 1996 when SEBI issued
guidelines for VC Funds.
Methods of VC Financing:
1. Equity Financing,2. Conditional Loan,3. Income Note,4. Participating Debentures
