Unit 4: Financing options for new ventures

• Seed capital: the initial money to start the venture — prove the idea, build a prototype and set up. Sources: own funds, family, angel investors, seed funds and government seed schemes.
• Margin money: the promoter's own contribution (typically 10–25%) required by banks before they lend; government schemes such as PMEGP provide margin money assistance.
• Bridge capital (bridge loan): short-term finance to bridge a gap until long-term funds (a sanctioned loan or the next equity round) arrive.

Lease funding: the business uses an asset (machinery, vehicles) owned by a lessor in return for rent, conserving capital. Operating lease — short term; finance lease — most of the asset's life.

• SIDBI (1990) is the principal financial institution for MSMEs: direct and refinance lending, the Fund of Funds for Startups, venture capital support and micro-finance.
• Commercial banks provide term loans, working capital (cash credit, overdraft), MUDRA loans and priority-sector lending to small businesses, often with CGTMSE guarantees.

Industrial sickness: a unit that cannot meet its obligations and suffers continued losses and erosion of net worth. Causes: poor management, outdated technology, market changes, finance problems, labour issues and diversion of funds.

Under the Insolvency and Bankruptcy Code (IBC), 2016, the NCLT handles insolvency resolution; MSMEs have a pre-packaged insolvency option. Exit strategies: sale of the business, merger or acquisition, IPO, buy-back by founders, management buy-out, or closure and liquidation.