THERE IS ENOUGH MONEY GOING AROUND FOR SMES
Financing is not a constraint for the right SME, but the key is to be ethical and transparent with lenders and investors
India’s small and medium enterprises sector is not starved of capital either for growth or working capital contrary to the popular perception. Instead, this vital sector has a better access to quality capital in recent times as different modes of financing have opened up lately, viewed industry experts in a panel discussion on the topic of ‘Finance Made Easy’ at the Growth Leadership Conclave – from SMEs to Unicorns.
Entrepreneurs now have the option of raising capital through public sources such as stock markets and through an initial public offering as well in addition to sources such as bank loans and private equity investing.
“We see a huge opportunity for SMEs and a lot of capital may come from other sources such as through small investors through SME platform of stock exchanges,” said Dhruv Desai, Director, Tradebulls.
Continuing the discussion on the challenges entrepreneurs face in the unlisted space, Mandar Gadkari, head of investor engagement, Cross Border Angels said: “In the listed space, the financials and history can be verified. That’s not easily the case in the unlisted space. We have to go a step further in verifying information. Second, valuations become a challenge. You need to resort to industry valuations. Third, investors want to look at the longevity of the business and look at the roadmap all the way to exit. Fourth, often there is a mismatch between the objective of an investor versus the entrepreneur’s rationale for a business and that becomes a challenge.”
However, the panelists agreed that financing is not a constraint for the right businesses in recent times provided businesses are able to think long-term and remain ethical.
Robin Banerjee, Managing Director, Caprihans India pointed out that there is enough money available in the system. “The only issue is you have to get into the shoes of the lender. You need to explain to them what is in it for them. Lenders are looking at whether you can repay the interest and principle. If your project is good, and the project can pay back the interest and principal on time. Second is ethics. Businesses should be thinking long-term. Be ethical, it always works,” Banerjee noted.
Ramnath Subramanian, ED, Maha Metro and CEO, Village Solial Transformation Foundation pointed that Maharashtra is showing the way on how small businesses in the rural areas are able to offer unique products. “We are now working with a lot of small SME companies who have unique products specifically meant for supporting agriculture, for skilling, for increasing farm income, and to reduce infant mortality. The opportunity for SMEs that we see is humungous right from solar cells to small water treatment facilities to books on educations and systems to support education. The SME platform is a huge opportunity in rural India.”
However, it’s not always smooth sailing for SMEs. Samir Dhingra, CEO, Netspider noted that for some businesses revenue realization can take a long time. However, the business has been funding its working capital from temporary overdrafts from bankers.
Banerjee, however, noted that maintaining a relationship with the financier is critical, particularly when times are tough. “Please maintain good relationships with your lender. Whenever there are tough times, the industry does not keep the bankers involved. Keep them informed, and they will help you find a solution,” said Banerjee.
Sushanto Mitra, Founder and CEO, Lead Angel Network & Moderator of the panel said: “Keeping your investors informed and that includes sharing your revenue numbers and so on, is actually going to help you in getting help when you need. So transparency about your numbers and the situation that you are in is beneficial to the entrepreneur.”
Desai also suggested that typical SME entrepreneurs may have their balance mixed up with their family balance sheets. “Small businesses have to separate the two,” he said. He also pointed out that good auditors are critical for small businesses. “When you are looking at raising funds, you also need a good auditor as it’s one of the first things an investor looks out for,” he said.