Start-ups? What is the New Rage All About?
Entrepreneurship and start-ups are only a recent phenomenon in the country. It is only in the last decade and half that people in the country have moved from being job seekers to job creators with great scope ahead.
What is a Start-up?
Start-ups are founded by one or more entrepreneurs who want to develop a product or service for which they believe there is demand. These companies generally start with high costs and limited revenue, which is why they look for capital from a variety of sources such as venture capitalists. These companies typically don’t have a fully developed business model and, more crucially, lack adequate capital to move onto the next phase of business. Most of these companies are initially funded by their founders.
How Do You Start a Start-up Company?
The first step in starting a start-up is having a great idea. From there, market research is the next step to determine how feasible the idea is and what the current marketplace looks like for your idea. After the market research, creating a business plan that outlines your company structure, goals, mission, values, and objectives, is the next step.
One of the most important steps is obtaining funding. This can come from savings, friends, family, investors, or a loan. After raising funding, make sure you’ve done all the correct legal and paperwork. This means registering your business and obtaining any required licenses or permits. After this, establish a business location. From there, create an advertising plan to attract customers, establish a customer base, and adapt as your business grows.
How Do You Get a Start-up Business Loan?
There are more than 39,000 start-ups in India at present who have access to many private equity and debt funding options. However, it is a challenge to get funding when the business is just an idea or is in the early stage. Also, the Micro, Small, and Medium Enterprises (MSME) sector in India only has limited access to formal credit which is why the Government of India decided to roll out start-up business loan schemes for MSMEs and start-ups.
The Small Industries Development Bank of India (SIDBI) has also begun lending to start-ups and MSMEs directly rather than channelising it through banks. The interest rates on these loans are lower than the one offered by banks by almost 300 basis points. Some of the most notable and popular schemes offered by the Indian government for start-ups and MSMEs are as follows:
Bank Credit Facilitation Scheme:
Headed by the National Small Industries Corporation (NSIC), this scheme is targeted at meeting the credit needs of the MSME units. The NSIC has partnered with various banks to provide loans to the MSME units. The repayment tenure of the scheme ranges between 5 years and 7 years but in special cases, it can be extended up to 11 years.
Pradhan Mantri Mudra Yojana (PMMY)
Launched in 2015, this scheme is headed by the Micro Units Development and Refinance Agency (MUDRA) and it aims at offering loans to all kinds of manufacturing, trading, and service sector activities. The scheme offers loan under three categories – Shishu, Kishor, and Tarun in amounts ranging between Rs.50,000 and Rs.10 lakh. The Mudra loan can be availed by artisans, shopkeepers, vegetable vendors, machine operators, repair shops, etc.
Credit Guarantee Scheme (CGS)
This loan can be availed by both new and existing MSMEs that are involved in service or manufacturing activities but excludes educational institutions, agriculture, retail trade, Self Help Groups (SHGs), etc. Up to Rs.2 crore can be borrowed under this scheme headed by the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
Stand-up India
Launched in April 2016 and headed by SIDBI, this scheme extends loans to enterprises in manufacturing, trading, or services. Under this scheme, loans ranging between Rs.10 lakh and Rs.1 crore can be availed. The repayment of loans taken under this scheme can be done in seven years while the maximum moratorium period allowed is 18 months.
Sustainable Finance Scheme
This scheme is also headed by the SIDBI and aims at offering loans to industries that deal in green energy, renewable energy, technology hardware, and non-renewable energy. The government started this scheme with an intent to offer support to the entire value chain of cleaner production/energy efficiency and sustainable development projects.
Features and Benefits of Start-up Business Loan
No collateral or security needs to be provided to avail a start-up business loan.
start-up business loans come with easy and flexible repayment tenures.
The documentation required for availing a start-up business loan is minimal.
The funds are swiftly disbursed to the applicant’s bank account.
The interest rate charged by the lender will depend completely on the applicant’s credit history.
Advantages and Disadvantages of Start-ups
There are a variety of advantages to working for a start up. More responsibility and opportunities to learn are two. As start-ups have fewer employees than large, established companies, employees tend to wear many hats, working in a variety of roles, which leads to more responsibility as well as opportunities to learn.Start-ups tend to be more relaxed in nature, making the workplace more of a communal experience, with flexible hours, increased employee interaction, and flexibility. Start-ups tend to also have better workplace benefits, such as nurseries for children, free food, and shorter workweeks.
Pros
More opportunities to learn
Increased responsibility
Flexibility
Workplace benefits
Innovation is encouraged
Flexible hours
Cons
Risk of failure
Having to raise capital
High stress
Competitive business environment
What Are the Benefits of Working for a Start-up?
The benefits of working at a start-up include greater opportunities to learn, increased responsibility, flexible work hours, a relaxed work environment, increased employee interaction, good workplace benefits, and innovation.
How Do You Value a Start-up Company?
Valuing a start-up can be difficult as start-ups don’t usually have longevity in which to determine their success. Start-ups also don’t generate profits or even revenue for a few years after starting. As such, using the traditional financial statement metrics for valuations doesn’t apply. Some of the best ways to value a start-up include the cost to duplicate, market multiples, discounted cash flow, and valuation by stage.
Starting a company can be a difficult venture but a rewarding one. Having a great idea and attempting to bring it to market comes with a host of challenges, such as attracting capital, employees, marketing, legal work, and managing finances. Keep in mind, though, that start-ups lead to increased job satisfaction and the possibility of leaving a legacy.