How to Raise Finance....This is a question that comes to the mind when you get down to raising finance from a formal source. As you understand what you need in terms of the amount, period and type of finance you need to proceed with planning the execution of your financing requirement.
As we discussed in the Business Planning segment, you have taken a long term view of the various strategies to be employed to make your business or firm a success.
You decided that once your company has reached a certain level of growth you will need more finance. So you started setting up simple systems to manage your business by maintaining regular books of accounts, recording each transaction, measuring revenues and controlling expenses and so on.
You have over the months/years recorded transactions to have the following books of accounts:
1. Balance Sheet
2. Income Statement
3. Cash Flow Statement
In the Balance Sheet you have your Capital Structure i.e. all the Equity you put in plus the Liabilities you raised and these all should add up to give you the Assets you have created by all the money you have put in the business.
In the Income Statement you have recorded all the Revenues you have earned and all the expenses you have made in running your business. The difference of the Revenues and Expenses will be your Net Profit if you made money or Net Loss if your expenses are more than your income.
The Cash Flow Statement is the movement of cash in two periods of time and is made using both the Income Statement and the changes in Balance Sheet accounts. It gives you a clear picture of how much money or Cash actually came into or went out of your business.
When you approach a financial institution for financing you should be very clear about your Business Model ... your supply chain and your client base. Your marketing strategies and the period for which you have to hold inventories and in what quantities.
Give the contact information of some of your vendors/suppliers and some of your buyers. Show your marketing material and samples if any.
If you sell at exhibitions, show pictures of your stalls and also the sales results.
Write a letter to the Bank requesting for the amount that you need and the security you can offer and also request for an appointment to personally meet the concerned official.
These processes are the same whether you have a sole proprietorship, partnership or company. However, in case of charge registration where assets are hypothecated in favor of the bank/FI it has to be a company.
Coming on to types of security - there can be pledge of goods, hypothecation of stocks, charge on receivables, charge on current and future assets etc.
Types of Finance help you understand what kind of collateral might be required by your banker. The link is given below ... and then have a look at how the whole Finance Process will flow ... It varies from bank to bank, here we have given just a basic, general idea.