Scoring powerful funding has always been a curveball for businesses, but to bank that in a pandemic is totally a different ball game. 

The economy is going through turbulence. And that has made the availability of capital for your business a thousand times more challenging. But, all is not lost – all you need to do to get your business hustling again is to look for smart and focused sources of capital.

Make the right choices according to your financing needs & current financial situation, and you can come out of this victorious. 

Of course, the first level of funding revolves around optimisation of receivables and spends. Post that, here’s a rundown of all the key capital sources that you need to be on the lookout for, to beat these uncertain times:

What & where to look for smart sources of capital

1. Your own network

It’s a no brainer that whenever we are running low on cash, friends & family are the first people we reach out to. Well, this isn’t any different – if you think they can back you up & get your business running then go ahead and reach out to them. That being said, you need to gauge their situations too in this plummeting market & be sure you don’t tarnish the relationship with your close-knit family & friends

Other entrepreneurs in your business circle, especially those who know the sector and your abilities well are a strong probable source too. 

Deena Jacob, Co-founder & CFO, Open Financial Technologies on scoring additional capital sources in Covid-19

2. Government schemes & grants

The government of India has announced various modes of financial aids to uplift SMEs, MSMEs & startups to battle COVID-19. The top two initiatives you should definitely be up to speed are: 

(i) Collateral free automatic loan to MSMEs / Rs 3 lakh crore credit guarantee scheme for MSMEs:

Financial institutions like banks & NBFCs have been directed to give an emergency credit line up to 20% of the existing loan to borrowers with loans upto 25 crores and turnover upto 100 crores. The tenure is for four years with a moratorium of one year. 

Deena Jacob, Co-founder & CFO, Open Financial Technologies on scoring additional capital sources in Covid-19

(ii) Fund of funds for MSMEs:

This is an equity funding that’s announced by the government to help MSMEs with ‘growth potential and viability’, even as they are faced with severe shortage of equity. The fund of funds will infuse Rs 50,000 in equity, thus catering to over 25 lakh MSMEs.

Not just these, there are other steps taken by the government to accelerate the growth of SMEs & MSMEs. These include:

  • The MSME receivables from Govt./CPSEs will be released in 45 days.
  • The e-market linkage to MSMEs will be promoted in place of trade fairs/exhibitions. This data will then be used to enhance trade based lending.
  • TDS rate has been reduced by 25% across the board, thus freeing up money that could have otherwise been blocked.

3. Traditional loans & dynamic scoring models from new age fintechs

    Now if yours is a business that doesn’t make the cut for the financial assistance provided by the government – don’t lose heart. There are numerous ways to keep your business afloat on a sea of unpredictability.

    For instance, you can always opt for traditional streams of cash flow like business term loans and lines of credit. They have always been a great option for mature businesses that are now strapped for cash. Today not many businesses qualify for a business loan due to various factors. Primarily their inability to assess business health from a 360 degree, due to lack of data and history. Given that, this is one option that most businesses can fall back on to fund their operations.

    Moving ahead,  you are sure to find funding in one of the many alternatives through fintech lenders including peer-to-peer lenders who offer loans on cash-flow based lending and have products on offer including moratorium for upto 3 months. These options are built to offer more flexibility and in most cases lead to faster disbursement of the funds. 

    Open’s credit offering is a classic example where we match the demand to the right source based on cash-flow and other macro economic factors apart from historical data. We have a unique proposition that brings together various sources of capital including banks, NBFCs and peer-to-peer lenders – to craft products suited for each segment and for each stage of their business cycle.

    We’re also backing businesses by helping them get back stronger in the game with timely back-to-business loans. These quick loans up to Rs 1 lakh, come at zero EMI for the first three months and the funds will get credited to your account in just 72 hours!   

    4. Venture capital and venture debt

    No doubt venture capital and venture debt are the default funding options for most businesses.

    However, in times like this, the key is to demonstrate your ability to navigate through the current state of affairs with strategic thinking, speed and execution. Businesses need to respond to situations proactively and have a resilient long term business model in place. Venture debt should help you extend your runway, if you are already sitting on decent cash flows.

    Deena Jacob, Co-founder & CFO, Open Financial Technologies on scoring additional capital sources in Covid-19

    During such periods of economic downturn, getting a VC backing is no easy feat. However, the good news is that overall inflow in VC funding amidst these trying times have been close to USD 1Bn – though it is relatively smaller compared to the whole of last year and 50% of what Q1 2020 saw.

    Things are definitely going good for education, healthcare, and agritech as they have seen very early-stage fundings. Growth-stage companies have also managed to receive funding – especially the ones who are tiding strong over the current crisis and those who have managed to fuel growth in sectors like supply chain and neobanking. This makes one thing clear – if need be consider pivoting your business model or maybe even venture out into something new. You never know, you might just find a VC who will back you up to achieve your dream.

    So yes, things seem to be looking up as a few venture capitalists are riding the storm and are gearing up to add on to their existing portfolio.

    Time to play smart & go for it 

    Bottomline, additional capital sources ARE available. There are many key areas you can venture into to get the financing your business needs, but you need to be smart enough to take the right plunge. And the limited access to capital in the economy clearly makes it very difficult. 

    You need to be clear about what you are seeking capital for –  Is it for surviving or to take your business to the next level? 

    Accordingly, you need to assess your risks & options of scoring alternative financing & place your bets. 

    Categories: Open Up

    Deena Jacob

    Deena Jacob

    Anchoring finance function | Co-Founder & CFO at Open