For any company trying to raise funds, traditional options come with their own set of issues.
But while banks do offer short-term loans, sometimes they need a guarantee or large collateral to extend the loan. In addition, banks frequently have enough exposure to certain sectors and therefore have limitations in lending to certain companies. And, even if they do manage to give the loan, companies may realize that they need more money after commencing the project, in which case there is a lot of rework needed to add incremental funds to the sanctioned limit. In such scenarios, raising funds for a short duration, or for a specific activity could become a tedious and time-consuming process.
Newer funding options
However, thanks to a larger investor market, favorable regulations, and technological advancements today, there are a lot of other funding options available to enterprises for raising money in the form of debt.
According to the Reserve Bank of India, businesses today are increasingly relying on private placement for debt financing. And why not? The cost of private placement is less than one-sixth the cost of a public placement!1
If you’re a company that needs capital, you can use a lot of options to raise debt for the short term, some of which are given below:
A. You could issue Corporate Bonds, which typically have a tenure of 12-36 months or more, or Commercial Papers which have a tenure from 30 days to less than 12 months.
Do you know you can lend money to growing companies and earn fixed returns? It’s done through products called corporate bonds and the best part? Returns range from 8 – 20%!
B. You can opt for Invoice discounting and raise funds based on invoices receivable.
C. If you’re a start-up company with a growing revenue stream but still not profitable as you are investing in future growth, you can opt for Revenue-based financing or venture debt, where you can raise capital by pledging a percentage of future ongoing revenues in exchange for the money invested.
You could also opt for Asset leasing if you are an asset-light company, where you can procure assets on rent without having to incur upfront capital expenditure. The assets are the underlying securitized collateral for the financer.
These are just a few options. In the recent past, a lot more ways have emerged for companies to raise debt. The problem though, is that until now, only institutional investors and the ultra-rich could afford to participate in these transactions as investors.
The simplest example of putting an asset to optimum use to generate returns is leasing/renting out a property. Now, even those with no property to their name can earn returns by investing in leasing products. Learn more about it here.
But the current space is extremely interesting – today, with Fintech startups like altGraaf innovating on the distribution and technology front, they have opened doors for smaller retail investors too to participate in such financing transactions, with ticket sizes as low as Rs. 1,00,000.
In fact, as per SEBI data2, the Category II Alternative Investment Funds (which invest primarily in Venture Debt, Structured Credit products like Invoice Discounting, Real Estate etc.) have grown over 42% between March 2021 and March 2022, indicating that more and more Indian investors want to participate in such options! For companies, this is great news because it means that now there are more financing options for them to choose from if they want to raise debt. A partner like altGraaf can help companies structure products and raise debt seamlessly.
