Funding your business the right way

Every now and then we hear of expansion plans that retailers are undertaking for growth. Getting funds is not a difficult task now with options galore. Let us filter out what these options are.

Funds are what aid the growth and expansion of a retail business. The retail business is all about growth and making an impact on people’s mind. The Indian retail sector is growing and becoming one of the most eye-catching retail destinations and is attracting a lot of investors. The growth which is foreseen has to be backed with an adequate amount of investment.  
Bank loan
Bank loans are always the first and most preferred choice when it comes to funding a business venture. Banks give loans in exchange for security of an asset. Tangible assets are preferred for the security. However, land, building, plant and machinery may not fall under the securities. The advantage of getting a loan from a bank is that the equities of the business do not shift hands and go to an outsider. Almost all of the banks whether private or nationalised, have devised plans and schemes for offering credit to retail business owners. With changing scenarios banks are also devising better schemes to cater to the growing needs.  

Private equity
Private equity refers to raising money from equity investors. In such an arrangement, the investors typically exercise control over the company with respect to the number of shares that they own. Private equity funds usually pick up around 15-20 per cent stake in retail chains with an eye on returns within the next 3-5 years. Valuations of retail formats are determined by factors such as turnover, number of outlets, sales per sq. ft and gross margins. The interest in retail is increasing because of the low number of bankruptcies and liquidations that take place as compared to other industries. Also with the retail industry performing well and in the past industry deals have proven profitable, it is expected that the private equity firms will continue to show interest in the retail sector. However, certain retail sectors are speculative as these have been challenged to a great extent by changes in consumer buying habits.  

Bought-out-deal (BOD)
A Bought-out-deal is a form of private equity in which the company sells its shares to an agent or a merchant banker, this merchant banker then offloads or sells the shares at an appropriate time. These can be passed on through an IPO or OTCEI) Over the Counter Exchange of India). It usually takes place in well established companies and is a less complicated process. The acquisitions can be undertaken with the objectives of either extending their existing product lines to increase their presence in a market or to enter a competitive market. 

Venture Capital Funding (VCF)
VCF is an equity that offers finance in exchange of equity stake of the company. These equities craft enhanced valuation of the company as VCF helps adding gravity to the business offering a corporate feel and invigorating the trade to a higher level and not simply a family affair. It focuses on specialising in funding expansion capital, buy out financing and much more. The benefit of VCF is to bring out business-like authority and supremacy and also encouraging advance hiring policy and marketing tactics. 

Funding through IPO
IPO refers to Initial Public Offerining. A large scale investment is needed when a company goes in for revamping or diversifying the business set up, an Initial Public Offer also known as public issue is an ideal way out to achieve the goal. Its benefit of being a long term investment and a method of acquiring a creditor’s trust, IPO has proved it essentialness for a business. It not only ensures proper asset liability management for long term projects but also makes debt-to-equity ratio low, hence giving the retailer to fund many retail ventures. 

So if expansion is on your mind, then you can choose from the funding options which best suit you and your business requirements.

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