Sources of Project Finance

Project Finance for Entrepreneurial Growth:

Entrepreneurial growth is largely dependent on the availability of project finance. Several aspirant entrepreneurs go around banks and other institutions for project finance sanction. In majority of the cases applicants wont get desired financial assistance and thus give up their entrepreneurial dream in the very beginning. We practically dont know how many great ideas must have got suppressed or went into oblivion owing to such situations.

In such instances, instead of resigning to their entrepreneurial pursuit owing to non-sanction of project finance, start-up ventures could explore their project funding requirement through several channels.

Own investment which is called promoters equity (a percentage of total project cost say 20% of total required project finance) Governments assistance and Bank loans Angel investment by an individual investor Venture capital funding Partnership with like minded entrepreneurs Business Incubators Collaboration with other companies

Own investment:
In cases where you seek bank loans you should showcase your own equity which could be anywhere above 5% of the project cost. It might go up to even 40% depending upon your financial profile, your professional relevance to the proposed project, the security you propose, the project viability and regulatory provisions related to your project sector.

Project finance from Government and banks:

The funding assistance by banks and government sponsored credit would generally consist term-loan, capital subsidy, interest subsidy, marketing support, technology support, skill development, credit guarantee and more as come up from time to time for your proposed industry sector. Bank sanctioned loans would constitute Term loans for CAPEX, Working capital, Open Cash Credit (OCC), and OD. You may also get non-fund based credit in the form of BG, LC or any other leased instrument.

Angel investment by an individual investor:

Angel investment is extended by angel investor who could be a serial entrepreneur interested in financing other ventures. It could be an affluent person who can lend you required project fund. Angel investors in return may seek a specified rate of return, equity share, or any other return on investment. They generally come with personal touch but not without a calculated risk.

Project finance through Venture capital funding:

There is a growing level of VC funding in Indian investment scenario. VC funding is mostly for larger projects. They generally are distinguished by the investment size they venture into, their preferred industry sectors, type of participation in the project as an external support or active participation in the project controlling finance and management. The biggest advantage with VC funding would be that they do thorough evaluation of your project and once they decide to fund your venture they may facilitate marketing channels, strategic collaborations or bring in proven personnel at senior management level.

Partnership with like minded entrepreneurs:

This is the most common approach of first time entrepreneurs. A few like minded and passionate individual join together. Some with ideas, some with capital, some with subject matter expertise. We have scores of ventures who had seen ultimate success through similar partnering. The success path in partnership ventures is always defined by the clarity in terms of partnership, role play in the business and finally clarified exit route for those who dont wish to continue in the partnership.

Business Incubators:

We have several companies and institutions who provide you with all the required infrastructure for your venture like office premises, IT infrastructure, people, and management support all for an equity share plus regular returns.

Collaboration with other companies:

In case your product is an ancillary requirement to other companies or your product is a supplementary to their product range you may seek their collaboration to invest in your venture. This happens under long-term MOUs and strategic agreements. This is the best approach to raise your startup as you get investment and you get a ready-made market for your product. The other approach is you may collaborate with companies under buy back arrangement which means that the company will buy your products and you just need to focus on making a quality product to the scope and design of the collaborated entity. In case you get into buy back arrangement with reputed companies or government institutions you can raise bank loan without many hassles. You may now consider the best source from among the above for your project finance. Leave your comments here for further information, if any, required. Happy Blogging Team BlogBee