Have you watched that TV show?
Yes, I am talking shark tank, where entrepreneurs from all over India came to get the funding for their startup or business in exchange for ownership of the business.
Raising capital leads to business growth, and there are several methods for startups and SMEs to raise cash in today’s environment.
Every business needs money to grow and for that, there are only two ways for a startup. Let’s discuss those, funding is also known as financing.
In this type of funding, the company offers some of its shares in exchange for money or capital. It is a risky investment since the investment purely depends on the business. there is no presence of collateral or mortgage of assets of the company.
Example:-Jain Automobile needs capital to open a new showroom in Kolkata so the owner of Jain Automobile needs capital so I can help them with the capital but in exchange, they need to give me some ownership in the business.
That’s how the Shark Tank show goes on, where existing owners of businesses ask for capital to grow and in exchange for it, Sharks ask for ownership in the business.
Do you know the most favored business structure for raising money?
The most preferred business entity for finance is a company with a Pvt. Ltd structure. HNI (High-Networth Individuals), Venture Capitalists, and Angel Investors are common ways to generate capital by issuing shares.
there are more ways to raise funding. let’s discuss them also .
The equity shares are given to the company’s directors or workers at a discount or for anything other than cash in exchange for their expertise, intellectual property, or value improvements. In a private limited business, such stockholders will not be included in the maximum of 200 shareholders.
Through MOA and AOA, the director is given the authority to borrow. If the amount to be borrowed and the amount already borrowed exceeds the paid-up capital, free reserves, and security premium, a special resolution is required. There are two types of loans: secured and unsecured. There is a fixed interest rate that must be paid. Only banks, financial institutions, members, directors, or relatives can provide a loan to a Pvt. Ltd. company. Such deposits necessitate the filing of returns. In the event of a closure, priority in repayment is given.
It can only be issued by a corporation. Any debt instrument, such as a debenture stock, a bond, or a loan. With a special resolution, convertible debentures can be converted into shares. There are no voting privileges. Non-payment of interest has repercussions.
For all business models, this is the most prevalent method of fundraising. Filing of a charge on assets forms with MCA, with or without security. Overdraft, credit facility, or bank guarantee are all options. Interest is charged at a certain rate. The deduction is allowed.
Credit purchase of products or raw materials. Working capital is a term used to describe the amount of money There is no requirement for collateral security. For startups, this is the best option.
Purchasing capital goods on a monthly basis. Unlike a straightforward payment plan. After the final payment, ownership passes from the vendor to the buyer. The buyer has the right to utilize it.
Selling a future receivable for a commission. The buyer is referred to as a factor. Payment will be received in the future. In the event of bad debts, there is no liability. Adaptable in the face of debt
Capital is just like that fuel without which a car cannot run.
I hope, I gave you some insights about funding your business and startup and delivered it in the best possible way.
If you have any queries related to the same then do leave a comment, and I will respond to it.
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To your Success
-Rajat Negi, Logging Out 🤗