3 Challenges Business Owners Face in Fundraising and How to Tackle It

While the Indian MSME sector is large and growing, contributing 30% to GDP, it has an investment size of just 20%. More importantly, most MSMEs find expansion and diversification a challenge and remain micro enterprises, instead of transforming into larger firms. What holds them back is finance, and this may be the same issue your business venture is facing or will face down the line. Tackling it involves being smart about your options and positioning yourself a viable enterprise that deserves an infusion of funds.

Here are the 3 main challenges that stand in the way of fundraising and how you can tackle them:

• Not having a detailed business plan and assessment of demand

Not only does your business need a sound plan and market research when you begin operations, but also when you require funds. Whether you’re looking to fuel working capital or need finances for growth, lenders need to see details regarding your sales model, scalability, competitor analysis in terms of cost and USP, your production, sales & marketing strategy, management plan, hiring plan, and market opportunity. Before designing a complete business plan, you should have a proper understanding of what is working capital, how it should be maintained and what will be sources you are going to have fulfil this financial requirements.

When you work off the books and based on your instincts, you’ll find it hard to convince a financier of an MSME or SME Loan, for instance, to invest in your vision. Your best bet in this case is to create a plan that outlines where and how you plan to use the funds and the growth you expect. Combined with the scope in your area of operations or field, this document will be able to convince lenders to offer you a loan or invest in your firm.

• Not being able to demonstrate business growth

Apart from having a certain business vintage, lenders or investors look for companies that have a track record of surpassing expectations or displaying consistent progress in sales, revenue, production or other figures. In fact, this is one of the key SME as well as MSME Loan eligibility criteria that you will need to meet. So, if you are still relying on cash transactions or not separating business and personal accounts, it’s time to change the game.

Start by building a balance sheet that clearly shows growth in key aspects like an increase in assets, decrease in liabilities, and increasing cash flow statements. Maintain it on a monthly and annual basis before you apply for funds, and analyse it with a CA or financial officer. This may also help you learn where you can trim the fat and the areas to focus on, while also helping your financier see why to invest in your company.

• Relying on VC and PE funding and not building collateral

With the rise of massive start-up funding and the growth of tech-enabled firms led by young entrepreneurs taking India by storm, you may have concentrated on the next big business idea more than on how to strengthen your firm. However, keep in mind that as per research by EY, in January this year, the private equity and venture capital investments in the country decreased by almost 50% compared to 2018! Apart from innovation, funding your idea and analysing the market becomes paramount, so your business can actually see the light of day.

Another problem is the overreliance on intellectual property without any fixed assets. When you don’t have collateral, getting a loan of a substantial amount becomes difficult. So, it is important that you build the right collateral in the form of office equipment, machinery, vehicles, or property. Another option is to look for collateral-free funding via a customised SME Loan by lenders. This form of business financing requires no assets to be pledged, has simple SME loan eligibility criteria, and offers up to Rs.30 lakh that you can access in just 24 hours!

Overcoming these challenges can help you raise the finance you need to steer your SME into profitable waters. Be smart about maintaining ownership in your firm as you choose between different options and go for an affordable SME Loan if you have a sound repayment plan in place.