TiE Event on Collateral-Free Debt Funding

TiE Mumbai had been exceedingly sweet in organizing a session on collateral-free debt funding last weekend, at IES Management School (Bandra West). It was attended by a healthy mix of entrepreneurs (idea-stage, early-stage and growth-stage) and finance professionals. There were bank representatives and multitude of questioning minds. And it has always surprised me to see how classrooms seem to have no windows at all. A closed set of walls built for learning.

Mr. Vipul Thaker (NHBS) introduced the concept and opened up the discussion for various stages of funding for a business. A few challenges for small businesses while raising money-

• S – Strategy (On paper won’t help. Is it execution-oriented?)

• O – Operations (Is the work effectively delegated? Is the team competent enough?)

• F – Finance (Are the accounts & taxes being taken care of?)

• T – Technology (Is the Capex really required?)

“Do you have your skin in the game?”

A key takeaway from the discussion was that it is necessary to have the promoter pay full attention to the business. If the bank/investor feels that we’re not focused enough on solving the problems we’re facing, they will not (quite understandably) put their money behind you. 

Mr. Thaker highlighted the fact that availability of finance is almost never the issue. The focus of the promoter is the key issue behind financial problems the business faces, because that results into problems on the operations & marketing sides. If the business starts bleeding in an unhealthy manner, how will it raise funds?

“Good ideas are not enough.
Safety & Security is important from the financier’s perspective.”

There is of course a bandwidth issue for small businesses, and that leads to lower priority given to compliance, taxes and financial matters in general. A promoter should ideally focus on core business and research (in order to fuel growth). Mr. Thaker suggested that it is best we outsource this to a finance expert, because strong records showcase our maturity as a business and help us when we raise funds.

“Focus on your business plan. Mitigate risk factors.
Take the bankers through it. Only then will they buy it”

Mrs. Urvashi Dharadhar from Saraswat Bank (cooperative) made it very clear that her bank does not provide collateral-free loans. However, it is open to entrepreneurs and is gearing up to be a better bank that it has been. Dena Bank (collateral free loans available but will fund only VC-backed startups) and Bank of Baroda had their short presentations welcoming entrepreneurs to approach them for fund requirements. After lunch, one-to-one sessions with banks were organized to facilitate interaction.

Instead of writing about bank-specific information here, I’d recommend you visiting the banks in person. Speak to your banker and ask around for advise. Raise funds from VCs if that suits you best, or get loans (collateral free or not) from banks if that’s best suited. There is money out there but it ultimately boils down to the way we’re building our businesses.

love and peace