Replies to This Discussion

Permalink Reply by Rohit Naidu on September 17, 2011 at 12:39pm

I think finding a potential investor and taking a partial loan from bank is a good option for you!

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Permalink Reply by Alok 'Rodinhood' Kejriwal on September 17, 2011 at 12:53pm

loans need collateral = personal guarantees

 

are you ready to take that risk?

 

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Permalink Reply by Nayana Somaratna on September 19, 2011 at 2:21pm

@Alok: why is that fundraising in the tech field is mostly investment, while that in other fields is mostly loans ?

 

Is it because there are few or no tangible assets in tech companies ?

 

If I might ask, how did you raise money for your socks factory ?

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Permalink Reply by Nadeera Nilupamali on September 17, 2011 at 10:12pm

Well Alok I am willing to do what it takes to make this a reality.
But also I've heard that there are other benefits of having an investor? What is you'r idea about that ?

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Permalink Reply by Shan Yahampath on September 20, 2011 at 10:03am

If I were to be in your shoes I would consider a few factors such as Length of time, cost of financing, perceived risk of the business and control of the business.

If you are to consider debt financing, usually a loan, as most of guys said you have to have some assets to be used as collateral or personal guarantors.  You require paying back the amount borrowed + interest, whether you make profit or not. And also you have to be clear whether you are looking for a short term loan (less than one year) to use to provide working capital to finance inventory or the operations of the business. This type of loans can be repaid from the resulting sales and profits of the year. If you are looking for a loan to purchase a piece of machinery, land or building, with part of the value of the asset being used as collateral, it is advisable to go for a long term loan.

If you are to consider equity financing, it does not require collateral and all what you have to do is offer the investor some form of ownership position in your venture (This is where CONTROL of the business comes into play), share in the profits, and also any disposition of assets on a pro rata basis.

What you have is an ongoing business, you must have a fairly good idea about your market, business growth etc so that you can take a calculated risk whether to go for a loan. Since yours is a new business you can employ a combination of both debt and equity financing. (Sorry if I sound like an academia) 

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Permalink Reply by Nayana Somaratna on September 20, 2011 at 8:42pm

@Shan: just to go off track - what is a line of credit ? which type of debt financing does it fall under ? 

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Permalink Reply by Shan Yahampath on September 21, 2011 at 9:43am

A line of credit is quite similar to a bank loan (Usually an overdraft facility) but the only difference is that the approved amount (Loan) is not withdrawn fully. So as a layman I can say it is an arrangement between a bank or a financial institute and a (regular) customer establishing a maximum loan balance that the customer is permitted to borrow and maintain. The customer can draw credit at any given time without exceeding the maximum amount agreed upon. This falls under ‘Cash flow financing’ as far I understand 

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Permalink Reply by Nadeera Nilupamali on September 21, 2011 at 12:21pm

Thanx Shan it was a great explanation......

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Permalink Reply by Nadeera Nilupamali on September 21, 2011 at 12:22pm

Thanx Neil

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