MEANING AND DEFINITION OF FINANCE
· Finance is
needed in all types of organization whether large/small or manufacturing
/trading.
· Entrepreneurial
finance is a term that encompasses a wide range of activities revolving around
the management of financial recourses and other valuable assets.
· It involves
procurement and utilization of funds so that the entrepreneur may be able to
carry out the operations effectively and efficiently.
· Finance involves
estimation of funds.
1)
How much finance is needed?
2)
How long the funds are needed for?
3)
How quickly the funds are required?
4)
What is the main purpose to obtain the finance?
5)
What is the size of own assets?
The procurement of funds is one of the toughest
challenges an entrepreneur faces and these questions help the entrepreneur to
narrow down the suitable options.
VARIOUS SOURCES OF
FINANCE AVAILBLE TO AN ENTREPRENEUR
1) Personal
Funds.
2) Business
Loan.
3) Loan from
Family and Friends.
4) Personal Bank
Loan.
5) Venture
Capital Investors.
6) Government
Grant and Subsidies.
7) Syndicated
Loan.
8) Loan from
Cooperative Societies.
1) Personal
Funds:
·
When starting a
business, your first investor should be yourself— either with your own cash or
with collateral on your assets.
·
This proves to
investors and bankers that you have a long term commitment to your project and
that you are ready to take risks.
2) Business
Loan:
·
A business Loan
is specifically intended for business purposes. As with all loans, it involves
the creation of a debt, which will be repaid with added interest,
·
A business loan
is borrowed capital that companies apply toward expenses that they are unable
to apay be themselves.
3) Loan from
Family and Friends:
·
He best thing
about getting friends and family members to fund your business is that they are
less demanding.
·
They will ask
you a small compensation in return for their investment. You can also consider
making your friend or family member your business partner
4) Personal Bank Loan:
Bank are
financial institutions provide business loan as finance for start-up. But many
entrepreneurs also use personal bank loans as a suitable part of their
financial structure.
5) Venture
Capital Investors:
·
Ventures capital is emerging as an important
source of finance for small and medium-sized firms.
·
Generally,
venture capital investors provide funds to early-stage startup companies.
·
Venture capital is a means of equity financing
for rapidly growing private companies.
·
Venture capitalist
is higher risk investors and in accepting these risks, they desire a higher
return on their investment.
·
Normally venture
capital investors provide funds to a company in exchange for company shares.
6) Government
Grant and Subsidies:
·
Government
agencies provide financing such as grants and subsidies that may be available
to your business.
·
A detailed
project description
·
An explanation
of the benefits of your project
·
A detailed work
plan with full costs • Details of relevant experience and background on key
managers
·
Completed
application forms when appropriate
7 Syndicated Loans:
·
A syndicated
loan is also known as a syndicated bank facility. This is a practice whereby
two or more lending financial institutions agreed to provide fund to finance
large project.
·
The amount of
one syndicated loan is so big such that one lender cannot fund or take on the
debt alone.
·
The big
companies are usually the borrowers for this type of loan.
VENTURE CAPITAL
·
Venture capital
is very important source of financing for a new business. Venture capital is
also known as risk capital
·
As defined,
ventures involve risk (having uncertain outcome) in the expectation of a
sizeable gain. Venture Capital is money invested in businesses that are small;
or exist only as an initiative, but have huge potential to grow. The people who
invest this money are called venture capitalists (VCs).
·
The venture
capital investment is made when a venture capitalist buys shares of such a
company and becomes a financial partner in the business.
·
Venture Capital
investment is also referred to risk capital or patient risk capital, as it
includes the risk of losing the money if the venture doesn’t succeed and takes
medium to long term period for the investments to fructify.
FEATURES OF VENTURE
CAPITAL
(i) High Degrees of Risk: Venture capital represents financial investment in
a highly risk project with the objective of earning a high rate of return.
(ii) Equity Participation: Venture capital financing is, invariably, an actual
or potential equity participation wherein the objective of venture capitalist
is to make capital gain by selling the shares once the firm becomes profitable.
(iii) Long Term Investment: Venture capital financing is a long term
investment. It generally takes a long period to Ancash the investment in
securities made by the venture capitalists.
(iv) Participation in Management: In addition
to providing capital, venture capital funds take an active interest in the
management of the assisted firms. Thus, the approach of venture capital firms
is different from that of a traditional lender of banker.
(v) Fulfill Require amount of capital: In case of banks one may not get the sufficient
amount of investment to backup the enterprise. Venture capitalist provides the
business with the required amount of investment considering the real time
situational needs of the business.
STAGES OF VENTURE
CAPITAL FINANCING
1) Seed Money:
Seed financing is defined as a small amount that an entrepreneur receives for
the purpose of being eligible for a start up loan.
2) Start-up:
Start up financing is given to companies for the purpose of finishing the
development of products and services.
3) First- Round:
Companies that have spent all their starting capital and need finance for
beginning business activities at the full-scale are the major beneficiaries of
the First stage financing.
4) Second-Round:
Second stage financing is provided to companies for the purpose of beginning
their expansion. It is provided for the purpose of assisting a particular
company to expand in a major way.
5) Third- Round:
Also known as Mezzanine financing, this is the money for expanding a newly
beneficial company. 6) Forth- Round: Bridge financing may be provided as a
short term interest. It is a form of monetary assistance to companies that
employ the initial Public Offers as a major business strategy.
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