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Every business starts small. ”Start-ups, Small & Medium Businesses are the growth engines of the Indian economy, contributing 30% of the GDP. However, they go through a really tough time trying to raise funds for their businesses when required. Recent studies show that the MSME credit gap in India advises 70% of credit demand remains unmet among MSMEs. 

This said gap states that entrepreneurs are unable to increase their inventory, invest in machinery, modernize or upgrade their infrastructure facilities. While entrepreneurs consistently speak about the impossible conditions, onerous procedures, paperwork, and delays to source credit, bankers/investors complain that many business owners are just not ‘finance ready’.

This stalemate persists, and despite a significant push from the Government, MSME lending remains below 20% of a typical bank’s portfolio. FinTech and NBFCs contribute to ~40% of new to credit borrowers, twice as much as private and public sector banks.  To bridge this gap, Kennis plays a very dominant role in the SME/MSME space in raising funds from different sources be it Debt or Equity in a structured manner. While raising funds for the company we understand the growing needs of the business, the changing market dynamics, the problem areas, and the opportunities in terms of tapping the right sources of Funds. Depending upon the requirements of business:

  1. We allocate a dedicated team who are experts in the field. 
  2. This team will formulate strategies and come out with a solution
  3. They will walk along with you till your objective is achieved.

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The various course of action for Raising Funds

1. Debt Financing:

The institutional Debt Financing to MSMEs in India that is overseen by the Reserve Bank of India includes Public Sector Banks, Private Sector Banks, Small Finance Banks, Foreign Banks, Co-operative Banks, and Regional Rural Banks.

Working Capital, Term Loans, Equipment financing, LAP, LC / Bill Discounting, ECB, Structured & Stressed assets funding, are some of the products under this category.

However, there are many limitations of Institutional Debt Financing which MSMEs are facing today. They may fall in any of the below-mentioned categories when they approach the Institutional lenders:

  • Termed them as high-risk borrowers
  •  Lack of timely credit for non-compliance
  •  Information asymmetry
  •  Issue of Collateral
  •  Ratings issues
  •  Procedural delays
  •  Vulnerable to market fluctuations

While raising funds, here comes the role of Alternative Sources of Debt financing where our team at Kennis, plays a dominant role viz:

  1. NBFC’s & Fintech – which are platforms for financing customers with a focus on Structured Finance, Asset-based Finance, Buyout financing, LAP, LAS, Receivables Discounting, Supply chain financing, Cluster financing, and small loans.
  2. CGTMSE: This is a department set up jointly by the Ministry of MSME and SIDBI to provide access to finance for un-served / under-served borrower segments, making the availability of financial assistance from lenders to first-generation entrepreneurs and underprivileged section of society who lack collateral security and/or third-party guarantee for supporting their ventures up to INR 2 crores

Kennis has great knowledge in all Debt financing products and depending upon the requirements and its internal study, the team will come out with the right approach and solution to meet its clients’ objectives.

2. Equity Financing:

Another path for raising funds is ‘equity financing’. To scale your business, one needs to raise money for growth. Irrespective of whether you’re looking to start your venture or expand an existing business, capital is a fundamental requirement for any kind of business. However, raising funds for small & medium businesses is quite a tough task. Most business owners go for the standard strategy of bank loans, which is expensive as well as challenging to achieve in the first place. Secondly, business owners must deleverage their balance sheet, and hence they need to consider other specialized sources to raise funds like equity financing. Equity financing is a method of raising funds for your business from investors. In return for the capital provided by the investor(s), you offer them shared ownership of your business, in the form of shares. Several types of equity funding are available to startups, small enterprises, and other mid-sized businesses. They are:

The equity path of raising funds includes Initial Public Offering, which is shortly known as IPO and occurs when a business decides to “go public.” After an IPO, the shares of your company are publicly traded on NSE (National Stock Exchange) or the BSE (Bombay Stock Exchange). Small businesses can also take the SME Exchange route to get their share listed.

The equity path of raising funds also includes Angel investors that are individuals or groups of investors with a significant amount of assets. They usually invest in startups and have strict rules about the businesses they invest in. A huge number of angel investors choose early-stage companies for investing in and provide operational and technical knowledge to the companies they invest in.

The next type of raising funds under equity fundraising is Mezzanine Financing. It’s a type of financing that combines both debt and equity. In mezzanine financing, the lender provides a loan. If the company is profitable, the borrower repays the loan under pre-negotiated terms. However, if the business takes a downturn and is unable to repay the loan, the lender steps in and converts the loan into equity.

Venture Capital is another way of raising funds under equity fundraising. Here the Venture Capitalist firms offer funding for small businesses and startups in exchange for ownership (a percentage of shares) of the company. Generally, venture capitalists look for high returns when they invest in a business. Venture capital firms have a dedicated fund to invest in startups.

For SMEs & MSMEs, Private equity funds are pools of capital to be invested in companies that represent an opportunity for a high rate of return. They come with a fixed investment horizon, typically ranging from four to seven years, at which point the PE firm hopes to profitably exit the investment. Exit strategies include IPOs and the sale of the business to another private equity firm or strategic buyer.

So, what do Equity Funds look for in Start-ups & MSME:

  • Strong Business- Profitability & ROI
  • Scalability
  • Competitive Advantage
  • Strong Management Team
  • Sound Business Plan

Our team at Kennis will be able to provide guidance to all the deserving Startups, SMEs & MSME in terms of raising equity finance. Come to us with your vision, come with your business plan, come with your funding requirements……we will assess internally and guide you through this journey from ‘Conception to Completion.

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