What are the current problems being faced by organizations in raising capital?

Raising capital refers to establishing capital from investors or venture capital sources by any firm. When any company wants to be more extensive, it can raise additional capital. Usually, extremely small or small company capitals come from three sources- friends and family, Business Angels and venture capitalists. Medium enterprises most of the times go with debt financing, equity financing and sometimes from the government too. There are many schemes provided by the government for such enterprises which lead to improvising in the economy of India. The methods and processes involved in raising capital for long term and medium term are listed below-       A. Issue of shares Equity shares Preference shares     B. Issues of debentures     C. Loan from Financial Institutions     D. Loans from commercial banks     E. Public deposits     F. Reinvestment of profits The methods and processes involved in raising capital for short term are as follows- Trade credit Factoring Discounting bills of exchange Bank overdraft and cash Above are the most common sources of startup capital for businesses. Every entrepreneur should know the game before being willing to invest their own money and proceed towards implementing business plan. “It’s often said, raising money is not actually a success, it’s not actually a milestone for a company and I think that’s true” - Marc Andreessen We shall now proceed to the discussion of some of the major concerns faced by organizations in raising capital- The current problems being faced by organizations in raising capital   One of the biggest challenges of funding is accepting rejection. Usually, the startup entrepreneurs do not end up with a good response. Investors are really not interested in startup or small-scale industries as they see very less potential. The main trouble that small businesses face while approaching for funds is the problem of uncertainty. Usually, small businesses do not have any past record that investors or lenders can analyse to decide whether or not to provide the small business with the required fund needed for expansion. Usually, small and medium firms have to pay a higher rate of interest in banks as compared to big and established firms. Banks and financial institutions ask for personal guarantees also. The stock marketers tend to lay or attach little value to it because they may not have confidence in small business offers. This will make the firm to issue more number of shares which dilute the firm’s earning. It becomes difficult for small businesses to find investors who are willing to invest. Investors are more likely to invest in bigger and more attractive firms. Strategies to resolve the current issues Grants by the government should be given to individuals for a specific project or purpose. There are some conditions which are to be followed for grants to be obtained. Funds from informal network of friends and family members is often ignored as a source of fund for small and medium-sized companies if well harnessed . Venture capitalists provide money to start-ups in the expectation of abnormally high return.
Kranthi Tilak Reddy
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What are the current problems being faced by organizations in raising capital?

Kranthi Tilak Reddy
Blog
16th Feb, 2018
What are the current problems being faced by organizations in raising capital?

Raising capital refers to establishing capital from investors or venture capital sources by any firm. When any company wants to be more extensive, it can raise additional capital. Usually, extremely small or small company capitals come from three sources- friends and family, Business Angels and venture capitalists. Medium enterprises most of the times go with debt financing, equity financing and sometimes from the government too. There are many schemes provided by the government for such enterprises which lead to improvising in the economy of India.

The methods and processes involved in raising capital for long term and medium term are listed below-

      A. Issue of shares

  • Equity shares

  • Preference shares

    B. Issues of debentures

    C. Loan from Financial Institutions

    D. Loans from commercial banks

    E. Public deposits

    F. Reinvestment of profits

The methods and processes involved in raising capital for short term are as follows-

  1. Trade credit

  2. Factoring

  3. Discounting bills of exchange

  4. Bank overdraft and cash

Above are the most common sources of startup capital for businesses. Every entrepreneur should know the game before being willing to invest their own money and proceed towards implementing business plan.

“It’s often said, raising money is not actually a success, it’s not actually a milestone for a company and I think that’s true” - Marc Andreessen

We shall now proceed to the discussion of some of the major concerns faced by organizations in raising capital-

The current problems being faced by organizations in raising capital  

One of the biggest challenges of funding is accepting rejection. Usually, the startup entrepreneurs do not end up with a good response. Investors are really not interested in startup or small-scale industries as they see very less potential.

The main trouble that small businesses face while approaching for funds is the problem of uncertainty. Usually, small businesses do not have any past record that investors or lenders can analyse to decide whether or not to provide the small business with the required fund needed for expansion.

Usually, small and medium firms have to pay a higher rate of interest in banks as compared to big and established firms. Banks and financial institutions ask for personal guarantees also.

The stock marketers tend to lay or attach little value to it because they may not have confidence in small business offers. This will make the firm to issue more number of shares which dilute the firm’s earning.

It becomes difficult for small businesses to find investors who are willing to invest. Investors are more likely to invest in bigger and more attractive firms.

Strategies to resolve the current issues

  1. Grants by the government should be given to individuals for a specific project or purpose. There are some conditions which are to be followed for grants to be obtained.

  2. Funds from informal network of friends and family members is often ignored as a source of fund for small and medium-sized companies if well harnessed .

  3. Venture capitalists provide money to start-ups in the expectation of abnormally high return.

Kranthi
Blog Author

Kranthi Tilak Reddy is one of the co founders and COO of White Matter Advisory services P Ltd. He is an Engineering graduate from SRM University and has done his Masters in finance.Being a true go-getter and an optimist to the core he has grown up the ranks in banking industry at an astonishing rate, his last stint being Associate Director, Business Clients -South with Standard Chartered Bank. With over 10 years of association with SME businesses and clients he certainly brings rich vein of expertise to the WMA table but more importantly his alluring passion towards great and customer service” the foundation on which he asserts WMA has been built.

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