Getting Finance as an Entrepreneur

Access to finance is the lifeblood of any entrepreneur. No entrepreneur can acquire resources or sustain business operations without adequate finances.

Getting finance as an entrepreneur invariably depends on:
• Identifying investors, lenders or donors
• Having a sound and credible business proposal that convince the investor or the lender to part with their money

Apart from the entrepreneurs own funds, the major sources of finances are:
• Loans from banks and other commercial lending institutions
• Government banked loans and grants
• Investment from angel investors, venture capitalists, and other investors

Finance from banks and commercial lending institutions as loans or overdrafts is a time-tested option for entrepreneurs but is an unpopular option of late owing to the high interest rates and the lenders insistence of collateral. With the economy in recession, most entrepreneurs consider such liability as a high-risk option and seek out alternative sources for capital. Many entrepreneurs now use their own funds to launch a business but this is unsustainable beyond a point.

Project Merlin, an agreement between the UK government, Barclays, Lloyds Banking Group, Royal Bank of Scotland and HSBC, among other things, aims to promote lending to businesses. Under this deal, a fallout of the financial crisis induced bank rescue package, banks committed to lend about £190bn to businesses. However, the verdict on whether this project has made it easier for entrepreneurs to access funds is still open.

The British Government has launched several schemes to help small and medium businesses raise funds. Such schemes provide entrepreneurs with access to much needed funds to start, expand, innovate and undertake research and development. One such scheme is the "Enterprise Finance Guarantee Scheme" scheme that allows entrepreneurs to avail loans up to £50,000 on submission of a viable and comprehensive business plan.

Many entrepreneurs have sound business proposals, but the banks simply refuse to lend them money for want of collateral. The Enterprise Finance Guarantee launched by the government allows such entrepreneurs access to bank loans as the government guarantees the loan.

With recession, the government has increased funding support to entrepreneurs who create jobs. The Grant for Business Development (GBI) offers finance to entrepreneurs who create new jobs. Entrepreneurs who chalk out an efficient, modern and scalable business preposition become eligible for funds to purchase capital assets. The amount of grant depends on the size, location and quality of the project.

The "Gateway to Finance" programme launched by the East London Small Business Centre (ELSBC) helps small business entrepreneurs across all 33 London Boroughs raise funds to start, grow or expand.

All these schemes have different eligibility criteria, but success invariably depends on a good business plan, and the extent to which the entrepreneur customise the project proposal to suit such eligibility criteria.

Banks, private investors, angel investors and venture capitalists all make their investment decision primarily on the business proposal or the project report prepared by the entrepreneur.

A good business proposal lends clarity on the nature of the business. It makes a specific mention of the product or service that the venture plans to sell, the targeted market and the basis of identifying the market for the product.

A good report justifies the proposal in qualitative and quantitative terms. The more detailed the project report, the better the chances of attracting finances. For instance, a detailed organisational structure, a comprehensive marketing strategy and other attention to detail makes the business proposal robust and attractive. It incorporates a realistic cash flow model, with projected income statements and estimated returns.

A linkage to the state of the economy and latest market trends helps. A SWOT (Strength Weakness Opportunity Threat) Analysis is an absolute must in any business proposal. For instance, with the economy in recession, a project report factors in the depressed economic condition when making projections and justifies how the business will attract customers in such an environment will have a higher chance of acceptance.

Apart from the details and projections of the project, investors also look into the background of the promoter. Highlight the educational and employment background of all promoters and backers, key competencies that would make them succeed and what makes each promoter take up the entrepreneurial route.