ENTREPRENEURIAL

FINANCE
 content
Entrepreneurial finance- Estimating the financial needs of a new venture, internal
sources of finance, external sources of finance, components of financial plan.
Institutions supporting Entrepreneurs: Small industry financing developing
countries - A brief overview of financial institutions in India - Central level and
state level institutions - SIDBI - NABARD - IDBI - SIDCO - Indian Institute of
Entrepreneurship - DIC - Single Window - Latest Industrial Policy of
Government of India.
Entrepreneurial finance: Meaning

Entrepreneurial finance is the process of making financial

decisions for new ventures (i.e. startups).
Estimating the financial needs of a new venture

1. Add up costs:
One-time costs may include such items as legal and professional costs for
incorporating or registering your business; starting inventory; licence and permit fees;
office supplies and equipment; long-term assets, such as machinery, a vehicle or real
estate; consulting services; and website design.

Recurring expenses will include such items as salaries, rent or lease payments, raw
materials, marketing costs, office and plant overhead, financing costs, maintenance
and professional fees.
2. Calculate your financial resources
Estimate how much starting capital you will have and the amount of revenue you’ll be able to
generate each month during the start-up period. To calculate the latter, research your
potential market and industry averages to come up with realistic numbers.

Now, plug your estimated financial resources and your estimated expenses into a set of
financial projections for your business. A quick examination of your projections will show if
you’ll have a financial shortfall.
To meet any gap in funds, here are sources you can tap:

1. Personal investment
Most start-ups require some personal investment by the entrepreneur—either cash or personal
assets used as collateral to secure financing. If you foresee a cash shortfall, you may need to dig
deeper into your personal assets.

2. Friends and family

Many new entrepreneurs rely on capital from family and friends (sometimes known as “love
money”). Family and friends often don’t mind waiting to be repaid until profits start rolling in, but it
can be challenging to mix business with personal relationships.
3. Debt financing
Lenders offer various types of debt financing including term loans and lines of credit. Some
lenders offer loans specifically designed for new business ventures that come with flexible
repayment terms.

4. Outside equity financing

Businesses with high growth potential may be able to secure start-up money from angel investors,
business incubators (also known as accelerators) or venture capital funds. Funds from these
sources are usually given in exchange for an equity position in the company.

5. Grants and subsidies

Some companies may be eligible for government grants and subsidies to help with start-up costs.
Internal sources of finance

1. Owners capital refers to money invested by the owner of a

business. This often comes from their personal savings. Personal
savings is money that has been saved up by an entrepreneur.
This source of finance does not cost the business, as there are no
interest charges applied.
2. Retained profit is when a business makes a profit, it can leave some or all
of this money in the business and reinvest it in order to expand. This source of
finance does not incur interest charges or require the payment of dividends,
which can make it a desirable source of finance.

3. Selling assets involves selling products owned by the business. This may
be used when either a business no longer has a use for the product or they
need to raise money quickly. Business assets that can be sold include for
example, machinery, equipment, and excess stock.
External sources of finance

External sources of finance refer to money that comes from

outside a business. There are several external methods a
business can use, including family and friends, bank loans and
overdrafts, venture capitalists and business angels, new
partners, share issue, trade credit, leasing, hire purchase, and
government grants.
Family and friends - businesses can obtain a loan or be given money from
family or friends that may not need to be paid back or are paid back with little
or no interest charges.

A bank loan is money borrowed from a bank by an individual or business. A

bank loan is paid off with interest over an agreed period of time, often over
several years.
Venture capital and business angels - refers to an individual or
group that is willing to invest money into a new or growing business in
exchange for an agreed share of the profits. The venture capitalist
will want a return on their investment as well as input into how the
business is run.
Share issue - a business may sell more of their ordinary shares to raise
money. Buying shares gives the buyer part ownership of the business and
therefore certain rights, such as the right to vote on changes to the
business.

Government grants - are a fixed amount of money awarded by the

government. Grants are given to a business on the condition that they meet
certain criteria such as providing jobs in areas of high unemployment. These
do not usually need to be paid back.
New partners - is when an additional person or people are brought into the
business as a new business partner. This means they would provide money to
then own part of the business.

Leasing - is a way of renting an asset that the business requires, such as a coffee
machine. Monthly payments are made and the leasing company is responsible for
the provision and upkeep of the leased item.
Institutions supporting
entrepreneurs
Central level financial institutions
1. Industrial Development Bank of India (IDBI)
2. Industrial Finance Corporation of India Ltd (IFCI ltd)
3. Small Industries Development Bank of India (SIDBI)
4. Industrial Investment Bank of India Ltd. (IIBI)
5. National Bank for Agriculture and Rural Development (NABARD)
6. Small Industries Development Corporations (SIDCO)
7. Indian Institute of Entrepreneurship (IIE)
1. Industrial Development Bank of India (IDBI)

The Industrial Development Bank of India (IDBI) was established in 1964 under an Act of
Parliament as a wholly owned subsidiary of the Reserve Bank of India. In 1976, the
ownership of IDBI was transferred to the Government of India and it was made the
principal financial institution for coordinating the activities of institutions engaged in
financing, promoting and developing industry in India. IDBI provided financial assistance,
both in rupee and foreign currencies, for green-field projects as also for expansion,
modernisation and diversification purposes. In the wake of financial sector reforms
unveiled by the government since 1992, IDBI also provided indirect financial assistance by
way of refinancing of loans extended by State-level financial institutions and banks and by
way of rediscounting of bills of exchange arising out of sale of indigenous machinery on
deferred payment terms.
Functions of IDBI
1. Direct financial assistance
a. Granting loans and advances and
b. Subscribing to, purchasing or underwriting the issues of stocks, bonds or
debentures.
2. Indirect financial assistance
a. Refinancing of loans given by the institutions,
b. subscribing to their shares and bonds
c. Rediscounting of bills
3. Development assistance: loans, donations
4. Promotional function: marketing and investment research, techno-economic
survey.
2. Industrial Finance Corporation of India Ltd (IFCI ltd)

IFCI Ltd. was set up in 1948 as Industrial Finance Corporation of India, a Statutory
Corporation, to provide medium and long term finance to industry.

The primary business of IFCI is to provide medium to long term financial assistance to the
manufacturing, services and infrastructure sectors. Through its subsidiaries and associate
organizations, IFCI has diversified into a range of other businesses including broking,
venture capital, financial advisory, depository services, factoring etc.
Functions of IFCI
1. The corporation grants loans and advances to industrial concerns.
2. Granting of loans both in rupees and foreign currencies.
3. The corporation underwrites the issue of stocks, bonds, shares etc.
4. The corporation can grant loans only to public limited companies and
cooperatives but not to private limited companies or partnership firms.
Activities of the IFCI
1. SOFT LOAN ASSISTANCE: This scheme provides soft loan assistance to
existing industries in small and medium sector for developing technology
through in-house research and development.
2. Entrepreneur development: IFCI provides financial support to EDPs.
3. Industrial Development in Backward areas
4. Management development: to improve the professional management the IFCI
sponsored the Management Development Institute in 1973.
5. Subsidized consultancy:

a. Small entrepreneurs for meeting the cost of project

b. Promoting ancillary industries.
c. To do the market research.
d. Reviving sick units.
e. Implementing modernization
f. Controlling pollution in factories.
Video- Successful entrepreneurs
https://www.youtube.com/watch?v=YC6sr5QWG04
State Level Institutions (Karnataka)
1. Karnataka State Financial Corporation (KSFC)
2. Karnataka Industrial Areas Development Board (KIADB)
3. Karnataka Council for Technological Upgradation (KCTU)
4. Centre for Entrepreneurship Development of Karnataka (CEDOK)
1. Karnataka State Financial Corporation (KSFC)

KSFC was established by the Government of Karnataka in March 1959 under the
SFC Act 1951, for extending financial assistance to set up tiny, small and
medium-scale industrial units in the State. Since then it has been working as a
regional industrial development bank of Karnataka.

● KSFC extends lease financial assistance and hire-purchase assistance for

acquisition of machinery/equipment/transport vehicles.
● KSFC has a merchant banking department. This department takes up the
management of public issues, underwriting of shares, project report
preparation etc.
KSFC gives preferences to the projects, which are
a. Promoted by technician entrepreneurs.
b. In the small-scale sector.
c. Located in growth centres and developing areas of the state.
d. Promoted by entrepreneurs belonging to weaker sections of society.
e. Characterised by high employment potential
f. Capable of utilising local resources; and
g. In tune with the declared national priorities.
2. Karnataka Industrial Areas Development Board (KIADB)

Karnataka Industrial Areas Development Board (KIADB) is a wholly

owned infrastructure agency of Government of Karnataka, set up under
Karnataka Industrial Areas Development Act of 1966.

This Board functions as per statutory provisions, rules and regulations

enacted there under.
Aims and Objectives
● Promote rapid and orderly development of industries in the state.
● Assist in implementation of policies of Government within the purview
of KIAD Act.
● Facilitate in establishing infrastructure projects.
● Function on “No Profit – No Loss” basis.
Functions (KIADB)
• Acquire land and form industrial areas in the state.

• Provide basic infrastructure in the industrial areas.

• Acquire land for Single Unit Complexes.

• Acquire land for Government agencies for their schemes and infrastructure projects.
District Industries Centre (DIC)
The 'District Industries Centre' (DICs) programme was started by the central
government in 1978 with the objective of providing a focal point for promoting
small, tiny, cottage and village industries in a particular area and to make
available to them all necessary services and facilities at one place.
The District Industries Centre is the institution at the District level, which
provides all the services and support facilities to the entrepreneur for setting
up Micro, Small and Medium Enterprises. This included identification of
suitable schemes, preparation of feasibility reports, arrangements for credit
facilities, machinery and equipments, provision of raw materials and
development of industrial clusters etc. This Centre caters to Promotion of
MSMEs as also Registration and Development of Industrial Cooperatives.
DICs extend services of the following nature
● Economic investigation of local resources
● Supply of machinery and equipment
● Provision of raw material
● Arrangement for credit facilities
● Marketing
● Quality inputs
● Consultancy and extension services
Single Window Scheme
A single window is a system where all facilities are available in one place.

This scheme encourages the investors for quick implementation of their projects
and to streamline the regulatory processes at a single point in India.

Single Window services for industries is a concept to provide all entry level
services to entrepreneurs, with minimum interface with departments, in a
transparent manner, within specified time leading to hassle free approvals.
contd..SWS
Under the Single Window Act, Government have notified and constituted different
Agencies/committees for receiving, processing and monitoring of applications
under Single Window Act.

For eg: To provide both term loan for fixed assets and loan for working capital
through a single agency.
video
https://www.youtube.com/watch?v=5ibYfFICsJk
Latest Industrial Policy of Government of India
The Industrial Policy specifies the relevant roles of the public,
private, joint and cooperative sectors; small, medium and large scale
industries. It emphasises the national significances and the financial
development strategy. It also explains the Government’s policy
towards industries, their establishment, functioning, progress and
management; foreign capital and technology, labour policy, and
tariff policy.
The main objectives of the Industrial Policy of the Government are
(i) to maintain a sustained growth in productivity;(ii) to enhance
gainful employment;(iii) to achieve optimal utilisation of human
resources; (iv) to attain international competitiveness; and (v) to
transform India into a major partner and player in the global arena.
The policy has brought changes in the following aspects of industrial regulation:

1. Industrial delicensing

2. Deregulation of the industrial sector

3. Public sector policy (dereservation and reform of PSEs)

4. Abolition of MRTP Act

5. Foreign investment policy and foreign technology policy.

1. Industrial delicensing policy or the end of red tapism:

Under the industrial licensing policies, private sector firms

have to secure licenses to start an industry. This has created
long delays in the start up of industries. The industrial policy
of 1991 has almost abandoned the industrial licensing system.
It has reduced industrial licensing to fifteen sectors. Now only
13 sector need license for starting an industrial operation.
2. Dereservation of the industrial sector
Under industrial deregulation, most of the industrial sectors
was opened to the private sector as well. Previously, most of
the industrial sectors were reserved to the public sector.
Under the new industrial policy, only three sectors- atomic
energy, mining and railways will continue as reserved for
public sector. All other sectors have been opened for private
sector participation.
 3. Reforms related to the Public sector enterprises:

Reforms in the public sector were aimed at enhancing

efficiency and competitiveness of the sector. The government
identified strategic and priority areas for the public sector to
concentrate. Similarly, loss making PSUs were sold to the
private sector. The government has adopted disinvestment
policy for the restructuring of the public sector in the country.
at the same time autonomy has been given to PSU boards for
efficient functioning.
4. Foreign investment policy:

Another major feature of the economic reform measure was it

has given welcome to foreign investment and foreign
technology. This measure has enhanced the industrial
competition and improved business environment in the
country. Foreign investment including FDI and FPI were
allowed.
5. Abolition of MRTP Act
The New Industrial Policy of 1991 has abolished the Monopoly and Restricted Trade Practice Act. In
2010, the Competition Commission has emerged as the watchdog in monitoring competitive practices
in the economy.

The industrial policy of 1991 is the big reform introduced in Indian economy since independence. The
policy caused big changes including emergence of a strong and competitive private sector and a sizable
number of foreign companies in India.