For expanding their operations, small businesses are increasingly turning to online business loans and funding options. Flexi EMIs and quick short-ticket financing are two advantages that online lenders have over commercial banks. As a result, non-banking financial institutions have become the preferred choice for modern SMEs.
Non-banking financial institutions are currently allocating working capital loans and unsecured business loans across the country, while banks are restricting their commercial lending activities.
Financial analysts must frequently make a distinction between working capital and startup capital in the course of their work. Working capital also referred to as net-working capital or NWC, describes the difference between an organization’s current assets (e.g., cash, inventory, accounts receivable) and its current liabilities (e.g., accounts payable). Working capital is a tool for assessing a company’s cash flow.
Startup capital, on the other hand, is a monetary investment in a corporation for the purposes of product growth, production, expansion, brand management, office space, and inventory. The funds raised by a new company to fund its initial costs are referred to as startup capital.
If you are a startup founder planning to raise venture capital, take our assessment to find out if your startup is venture fundable and how you can increase your chances of success.
What is Working Capital?
Working capital is a short-term predictor of a company’s operating performance, liquidity, and financial health. If a business has sufficient positive working capital, it can theoretically expand and invest with the funds available. When an organization’s current assets are less than its current liabilities, it can have trouble repaying creditors or incurring expenses. Furthermore, the company could go bankrupt.
Working capital is measured by subtracting the company’s existing assets from its current liabilities, as previously stated. The financial obligations of a company that are due and payable within a year are known as current liabilities. These are displayed on a company’s website. Current assets are assets that are expected to be liquidated or converted into cash in less than a year. Current liabilities must also be paid within a year.
Working capital is needed for most major ventures, such as expanding into new markets or increasing output. It has a negative effect on the company’s cash flow. However, if sales rates are falling or money is being received slowly, the cash level will fall, resulting in a similar drop in accounts receivable.
What is Startup Capital?
Startup capital is the initial capital required to run a startup business smoothly. This capital can from the entrepreneurs, from their family & friends, or even external investors like business angels and venture capitalists.
Startups are young businesses that are still in the early stages of growth. These businesses are started by one or more individuals who want to create and sell a product or service. One of the first things a startup has to do is raise funds. Most people refer to this form of funding as “startup money” or “venture capital”.
Entrepreneurs use startup capital to cover most or all of the costs associated with starting a new company. This involves paying for initial hires, office space, permits, licenses, inventory, market analysis, and testing, product production, and marketing, as well as any other costs. In certain situations, a new venture will need more than one round of startup capital funding to get off the ground. Professional investors such as venture capitalists and/or angel investors offer the bulk of startup funding to young companies. Banks and other financial institutions can also provide startup capital to certain businesses.
It’s no surprise that businesses can receive large sums of money from their investors, given the sources of startup funding. Since investing in young companies is risky, these investors often demand a solid business plan in return for their investment. In return for their contribution, they typically receive a share of the company’s ownership.
As a business grows and is put on the market, it is common to seek startup capital in multiple funding rounds. The final round could be an initial public offering (IPO), in which the company raises enough money to reward its investors while also investing in the company’s future growth.
At different stages of your company’s development, both of these are critical. We’ll focus on start-up capital and working capital in this article. You’ll need money to keep your company afloat while it gets up and running. What would you do with your money?
- Payroll and its associated costs (for you and any employees)
- Utilities (phones, electricity, Internet, and communications, among other things)
- Marketing and sales-related expenses
- Taxes on supplies, maintenance, and insurance
Make sure you budget enough money for the true costs of running your company during the first year of operations. (Also, remember to pay yourself first!) Make sure you’ve budgeted for more workers, increased production, more supplies for those new hires, and so on. One of the most common reasons for new businesses failing is a lack of sufficient start-up capital. (Another factor is inept management.) Forecast your financial needs reasonably and give space for the unforeseen, or you may find yourself out of business.
Here are some of the reasons why you should apply for a business loan from a Non-Bank Financial Institution (NBFC):
1. Timely Turnaround
The timely availability of financing is the one factor that determines its significance. If you do not obtain the necessary funds within the time frame specified, the opportunity will be missed, or the same activity will cost you more. Because the majority of small business owners apply with them, banks scrutinize business loan applications at their leisure. As a result, the loan approval process is lengthy. NBFCs, on the other hand, specialize in financing for small businesses. As a result, they complete documentation, verification, and disbursements in a timely manner.
2. Process is conducted entirely online.
The company’s online-only loan application process is one of the reasons why NBFCs would approve loans faster. Digital copies of required loan verification documents (in India) like PAN, Aadhar Card, Bank Statements, and ITR Certifications are available to every modern company. Where banking institutions grapple with filing and manual paperwork, an online lender can quickly check your company’s statutory status and disburse loans.
3. Only the bare minimum of documentation is required.
The lender can check your business and personal information through government online portals in an online process, so there is no need to submit a lot of paperwork and papers. NBFCs provide business loans by checking only the essential documents for your company’s identity, address, incorporation, and tax compliance.
4. Payments that are flexible
Lenders can cut costs associated with manual work by using an entirely online business loan process, and they are delighted to pass those savings on to you. When you get a business loan from an online lender like Lendingkart Finance, you can expect lower business loan interest rates, more flexible EMI options, and lower processing fees.
To conclude, money for investment capital must come from somewhere in both cases. A new business can pursue funding from a variety of sources, including angel investors. An angel investor is an individual or organization who invests in a startup company in return for ownership equity or convertible debt. They may make a one-time or ongoing investment to help the business get through its early stages. The funds will be used to develop and market the company’s products. When a new company goes public, it is obtaining large amounts of capital from a variety of investors.
A company can be funded in a variety of ways. Instead of focusing on how to finance, one should consider what type of expenditure is being made before deciding on the best way to fund it. To summarize, equity should be used to fund startup costs. Working capital is almost always financed with short-term debt. When a company is already profitable, capital expenditures can be financed by either debt or equity.
Make sure to check out our blog, for more such gems of information, as we take full pride in our intentions to enrich our readers with the knowledge to successfully run their own startup.