Hi Friends,
I am mechanical engineer and worked in automobile sector for 8 years. 3 year back I started my journey with very low capital (INR 277). we started off well and make some monopoly products for automobile segments.
Business grows well and we set up 3 units for the automobiles in Punjab and Gujarat.
Now we have good team of people to support who are experienced. we are growing at 500 percent. but then we are cash crunch as usually happened.
we have more orders to process now but there is no money available. Our asset values including land building and machinery is 50 lacks. Si kindly suggest shall I go for VC funding/ Partnership or Bank loans.
Thanks
Himanshu Mody
It is not a choice between growth vs cashflow . They are interdependent aspects of any business. My personal opinion is that if your margins can sustain bank interest comfortably , you should take bank loan. But in the long term the objective should be to build cash surplus and negotiate supplier and customer payment terms in a way that you can create a leverage and increase velocity.
Going for VC just for cashflow is according to me not a good idea.
Also like in real estate projects builders have investor quota , you can identify investors who will fund your cashflow for quick turnaround of their money. All the best.
Deepak Sharma
Thanks I am trying the same, with little bit of cash flow the margins can be increased to 40 %. But that little amount is not coming. Still trying, your advice is valuable for me and I will try to follow it.
Sridhar V
I will recommend a few things from the information you have shared, but since I dont know in and out of your business, I’m not sure how these will suit you.
1. If you have land and buildings you could consider taking a bank loan using them as collateral. If you are not able to get loan from PSU banks due to delayed processing you can approach private sector banks which offer loan against property. This will help you to unlock a large amount and use it for your business. I would prefer bank funding to VCs even though banks are picky about procedures and paper work, because banks would not interfere much in to operational aspects as long as their payments and business runs normally. VC will closely monitor your business and may ask for equity and significant share of profits too, which banks wont get in to normally.
2. You can collect some advance or funds from clients/customers for their orders. You can explain to them that you need the sum for XYZ reason (say for raw material purchase, labor, electricity, etc.). By this way you can get partially self-funded instead of waiting for external funds. Atleast for paying clients you complete the projects and keep them happy. Initially this may be a challenge and clients may resist, but if you frankly explain the business situation and ensure good quality and service they will understand and cooperate.
3. Just try to strike a balance between growth of orders and revenue cash flows. I think this is what you referred to in the heading. Try to slowdown a little and focus on revenue collection so that your sales are not merely based on credit/order bookings. Probably for one month you can slow down the bookings, complete existing orders, collect payments, and then start booking more clients again. This way you will have limited orders, but be able to satisfy customers and get your payments on time. Once the cycle of order to payment is well established then you can go the full swing and take more orders.
Please share some details with me at sridharcw@gmail.com. I can provide some suggestions though I’m not from auto industry. All information will be kept confidential.
Wish you good luck in your venture.
Deepak Sharma
Thanks a lot it s worth applying, I will do the necessary and send u more details on ur mail
Alok Rodinhood Kejriwal
bank loans!!
I just got this mail from Vijaya Bank:
VIJAYA BANK
[A friend you can Bank Upon]
MSME-CPC(Centralised Processing Centre)
Vikas Centre, S V Road
Santacruz(W), Mumbai 400054
Mobile: 7498 20 3363
Email id: mum.msme9856@vijayabank.co.in
CREDIT FLOW TO MSME IS ACCORDED TOP PRIORITY BY VIJAYA BANK
“A key to develop your business is the heights of success in the competitive world of entrepreneurs”
Welcome to Vijaya Bank, a strong and fast growing public sector bank with Pan India presence and having a vast network of 1300 branches and 700 ATMs. Bank has recently entered into the league of being a big bankand has raised its overall business to 1,50,250 Crores.
Opportunity for MSME
MSME has always been a thrust area for our bank and in order cater the increasing credit demands from MSME sector we have opened a fully dedicated MSME centralized processing cell in Santacruz(W) Mumbai.We are giving here below a brief of what is on offer. If this is of any interest to you, please mail us or call us on the numbers given below.
Industry (Enterprises engaged in)
Manufacturing:-Manufacture/Production,/Processing/Preservation of goods
Service:- Providing/Rendering of services
Loans to Retail Traders: Loans up to ₹20 lakhs
Definition of MSME
Category
Investment in Plant & Machinery/equipment Original cost excluding Land & Building and*certain items specified by GOI
Micro Enterprises
Small Enterprises
Medium Enterprises
Manufacturing Enterprises
Up to ₹25 lakhs
Above ₹25 lakhs and up to₹5 crores
Above ₹5 crores and up to ₹10 crores
Service Enterprises
[*Also excluding furniture & fittings]
Up to ₹10 lakhs
Above ₹10 lakhs and up to₹2 crores
Above ₹2 crores and up to ₹5 crores
Purpose of Loan:
1. For establishing new or modernization/expansion of the existing unit
2. For purchase of plant and machinery in the manufacturing sector and equipments in the case of service enterprises
3. To meet working capital requirements (Fund & Non Fund Based).
Margin:
Security:
1. Loans up to ₹10 lakhs are free of collateral security and/or third party guarantee.
2. Loans above ₹10 lakhs and up to ₹100 lakhs are also collateral free subject to good track record and financials of the unit, in case covered under CGTMSE.
3. Above ₹100 lakhs, collateral security and/or third party guarantee as acceptable to the Bank.
Rating of MSME units:
Rating of MSME units by approved rating agencies. Highly rated units are extended with concessional rate of interest.
Interest rates
[Subject to change] refer our website
No hidden charges
(Present rates are as follows)
Micro
Rate of Interest
Small
Rate of Interest
Medium
Rate of Interest
Manufacturing
Loans upto ₹50000
11.00
Loans upto₹50000
11.75
Loans upto₹1 crore
14.00
Above ₹50000 upto₹2 lakh
11.50
Above₹50000 upto₹2 lakh
12.25
Above ₹1 crore and upto ₹5 crore
14.25
Above ₹2 lakh upto₹25 lakh
12.25
Above ₹2 lakh upto₹25 lakh
13.00
Above ₹5 crore
14.50
Above ₹25 lakh upto ₹50 lakh
12.50
Above ₹25 lakh upto₹50 lakh
13.25
Above ₹50 lakh
13.25
Above ₹50 lakh upto ₹1 crore
13.50
Above ₹1 crore
14.00
Service
Loans upto ₹50000
11.50
Loans upto₹50000
12.25
Loans upto₹1 crore
14.00
Above ₹50000 upto₹2 lakh
12.00
Above₹50000 upto₹2 lakh
12.75
Above ₹1 crore and upto ₹5 crore
14.25
Above ₹2 lakh upto₹25 lakh
12.50
Above ₹2 lakh upto₹25 lakh
13.50
Above ₹5 crore
14.50
Above ₹25 lakh
13.25
Above ₹25 lakh upto₹50 lakh
14.00
Above ₹50 lakh
14.25
Credit Guarantee Fund Scheme:
[Excluding retail trade and educational institutions] Maximum loan coverage up to Rs.100.00 Lakhs.
Bank is extending coverage to all eligible loans under Credit Guarantee Fund Scheme. Under this scheme, the following fee is charged:
1) A onetime guarantee fee @ 1% of credit facility for limit upto ₹5 lakhs and 1.5% for limit above ₹5 lakhs (0.75% in the case of north eastern Region irrespective of the limit) is to be paid upfront to the Trust.
2) Annual service fee @ 0.50% p.a. on the credit limits upto ₹5 lakhs and 0.75% p.a. for limits above ₹5 lakhs on the outstanding amount as at March every year is also to be paid to the trust.
Special PACKAGE FOR MSME UNITS
1. Providing need based Adhoc Working Capital Demand Loans(WCDL)
2. Relaxed Norms with regard to age of the Book Debts.
3. Reduction in the margin on the Book Debts.
4. Concessional rate of interest.
5. Relaxation in the cash margin on Bank Guarantees and letters of Credit.
6. Extension of period of pre-shipment credit and post shipment credit at concessional rates to 270 days and 180 days respectively
7. Extension of Moratorium Period.
8. Special tailor made schemes for Doctors and other professionals and also to the transporters of school children and staff.
9. Rephasement/Reschedulement based on viability.
10. Finance for purchase of gensets to be made available on soft terms.
11. Second Restructuring depending on the need.
12. Setting up Regional MSME Centers at all Regional Offices for special attention to MSME borrowers.
Alok Rodinhood Kejriwal
its very simple:
loans get paid back. equity does not
loans work for working capital. equity works for plant and machines and long term capital needs (where most entrepreneurs make mistakes and assume they can pay off the machines via debt – a couple of bad years and everything dies)
ps – PLEASE share why Rs 277????
kanchan.kumar
As everyone else has indicated – your requirement is that of working capital and as everyone has indicated, bank is the best place for you.
However, banks also have various different products and you must understand what suits you best for your requirement.
Working capital is best managed using bank facilities (such as OD, CC etc) and not with a trational loan (for which you pay EMIs). I assume your customers would be big names – you could go for bill discounting as well.
Never go for high interest, unsecured business loans from private banks – they are the worst thing that can happen to a business.
manish agarwal
what is your website. if U r in products segment U may go for a franchisee model. This will give you some cash which U may collect as security deposit and U will get business as well.
Deepak Sharma
Dear Sir, I was doing a job in Caparo Engineering in Baroda. I was doing very well and was getting promotions every year with good pay. I was spending it as i was newly married in 2008. One fine day me and my wife got robbed during journey and our jewellery is lost. it was worth Rupees 5 Lacks. I was doing job from last 10 years. it was last days of month and i was left with INR 277. I saw no achievement in this. It was a kick ass for me and I quit to achieve something of my own.
Aditya Babbar
Deepak
I am confident that you would be able to garner some sound advice on funding for the purposes of production. You need working capital and there are lots of Banks whom you can approach (PSUs mostly as well as some Cooperative Banks) who would help you in this regard.
I for one am very intrigued on the Low Startup Capital (INR 277) that you mention.
Could you walk us through how you converted Rs 277(startup capital), produced products and garnered a Monopoly, setup units in Punjab and Gujarat, to an Asset base of Rs 50 Lacs. We shall await to hear about the journey !
I am really looking forward to this since you could very well be Our very own ‘jeeta-jaagta’ example of ‘How to startup with Rs 500″ (our Indian version of the $100 Startup)
Deepak Sharma
http://www.autonationindustries.com. We are not in franchise model
Mukul Bhartiya
Banks provide loan upto Rs. 1 Crore without collateral for starting business in manufacturing sector and the risk is covered by Credit Guarantee Trust for Small and Medium Enterprise(CGTSME). This option can be explored. You can talk to Mr. V. Kandavelu. His number is +918130221462 and he is faculty at Staff Training College, Bank of India, NOIDA and expert in this field. You can give my reference to him.
Deepak Sharma
Thanks a lot you guys are excellent and support is awesome.
Alok Rodinhood Kejriwal
!!!!!!!!!!!
Venudhar Bhatt
While you have good list of recommendations already, it would make sense to get professional guidance from a highly experienced finance professional. I know of a company that provides such service without you having to hire someone full time. As that would be an expensive/difficult proposition. The company’s name is ixCFO. You can reach the founder – Sanjay Gaggar – sanjay.gaggar@ixcfo.com for more details.
Deepak Sharma
Yes Arjun, now I am feeling it was easy to start and scale up but now it is becoming difficult. I know i will pull it off but your suggestions will be very valuable to make it. My product is complete chassis of three wheelers and two wheelers. Passenger cabins and other heavy duty products. Almost no competition in nearby areas of Punjab and Gujarat.
But I made some mistake by expanding too fast and making assets too fast like making a building for factory and buying a land for factory.
Now I have made the assets but short fall from working capital to pull off the orders. Hope you get my point now.
you can visit http://www.autonationindustries.com
Deepak Sharma
Sir I tried but cant understand your symbolic meaning
Deepak Sharma
How I set up the units is a long story, I will shortly share it with you guys.
Deepak Sharma
Thanks for sharing on fb and twitter. I am getting so good advice’s. It is worth rodinhoods.
Sachin Ramje
Hey why don’t you try for factoring. I guess if you have creditworthy customers and they are paying on time, you can surely raise finance over the purchase order or even invoice (if somebody pay after 30-90 days).I am just giving you option, as factoring is one of the best options I see for getting a good working capital.
Deepak Sharma
Dear Sachin I have never experienced this factoring. Can you explain me little bit more. my email deepaksharma1902@gmail.com
Sanchita Dutta
hey!!! i was wanting to ask bout 277!! but thought it might be too rude. 🙂
I feel one should control the growth of t he business in such a way that you dont end up gorwing too fast too soon and end up with cash flow crisis and burn out!! I think this is what happend with letsbuy and many others..
let me explain with a simple example. if you have goods (or services) worth say 100 which give you a margin of say 10% on sales. it means that assuming ZERO expenses (for calc sake), even if you acheive MAXM possible sales, you could only refill/restock your goods by a maxm of 10% ie for 110/- (100 + 10 profit)
Problem happens when greed and over-optimism take over. seeing the healthy sales, one ends up taking more stock say 200 rupees worth. now for this, he has to take loan (if he can manage that). now interest outflow in this will also chip off ur 10% margin. and god forbid if you had lower than expected sales or high incidence of failure of sales conversions, then you are in a position of no return. a genuinely good idea and business might pack up due to sudden drying up of capital. and at this stage even if some capital comes, it will at a v steep price and with compromise which may take thezing out of the business.
Lesson: unless the funding is assured and robust, it makes sense to try and control the growth of the company. most of times, greed of hitting a jackpot or fear of missing the opportunity bus makes us take rash decisions but one should try and remain calm.
while there will be opposite school of thought on the subject, my own experience taught me this. Once we were offered a 8GB Sandisk Pendrive promotion by ebay and were asked how much quantity we can manage, with the exp of 3 years behind us, we knew it would not exceed 100-200 so we said “any quantity”
Once the offer sale started, we sold 2700 pendrives in 2 days and eventually had to beg ebay to allow us to end the promotion. ( once started only they can close it, and we are obliged to fulfil all sales commitment)
Now there was about 50 rupee margin in each pendrive, so huge profit one might say, but we ended up taking loans from every human being we ever knew and still struggled. ( just to give you an idea, we sold them at 360, it cost us 280, minus expenses, out margin was about 50, but 2700×280= 756000, yes 7.5 Lakhs to be arranged in less than 48 hours!!!)
while we managed this taught us this v imp lesson, “dont bite more than you can chew”. while we got lucky having managed it that time, but may not be everytime. just to give you a perspective, if we had failed even 10 % sales and 50% of that had given us negative feedbacks, it would have meant 135 negative feedbacks and that would have been end of our business forever on ebay….
Amar Shah
Sachin means bill discounting !! Talk to your bankers. If you supply to Grade A companies the banks will readily assist you in bill discounting.
Its simple. On dispatch of goods to your client. Give the attested invoice to bank, The bank will release x% of the invoice for you the difference is bill discounting charges. On maturity of the invoice i.e. Due date the bank will present the same to your supplier and get its money.
Luck !! 🙂
Sachin Ramje
To you, as a provider of goods or services, this is a process where Factoring companies pre-pays against the credit invoices that you regularly raise on your established clients. In settlement of this obligation, your clients pay Factoring Company on the respective due dates directly.
You can look out for various Factoring companies in India…canbank factors, SBI factors, India factoring, etc. These players can surely help you in getting short term credit.
Let me know if you further require any help.
Sachin Ramje
yeah Amar,
Bill discounting is quite similar to factoring but has few differences in terms of procedure. There are individuals companies like India Factoring who does give you factoring at better rate than banks.
Thanks
Praveen
Mukul,
I am curious to know more details about tihs product that you mention – is that only available for manufacturers or for traders or retailers as well? i would love to know more if you are aware of any info, or if I can reach out to Mr. Kandavelu and give your reference.
THanks!
Parag C Shah
Every business goes through growth pangs. These have to be anticipated in advance. Even if you have a margin of error your trajectory should be known to you. It’s a clear case of short term finance being used for long term use. If I were you, I would look at my growth patter over the next 5 years. Do a projection and see what kind of a valuation my business can get after 5 years. Right now you are too desperate and the VC will get a good deal out of you.
So here are your options
1. Bring down production to a manageable level. Don’t be afraid to lose customers. You’d rather have no customers than have unhappy customers. They will come back to you if you are really good.
2. Go to a Bank. The Bank seems to be the best option. Ask them to fund your Machinery and Fixed Assets. They will be more comfortable with that. Tell them honestly you diverted funds and you want to make amends.
3. Go to your Suppliers and customers, tell them your problem. Tell your supplier to give you an extended credit. Go to your Customer , request him to make payments against delivery. If that is not possible, go for Bank finance.
4. If I were you, I would go for option 1.
5. Approach a good consultant from the big 5, like a KPMG or PWC or E&Y. They will best advice. You are at best a technocrat with no handle on Finance. You need someone to plan your finances well in advance.
Regards,
Parag
https://entrepreneurialleadershipblog.wordpress.com/.
Deepak Sharma
Thanks Parag, You are right and I accept my mistake also. Your option no. 5 is absolutely true. I will take up your suggestions. we will stay in touch if you will give me your email address
Parag C Shah
Hi deepak
My email is shahparag5959@gmail.com
Happy to help!
Parag
Parag’s Blog