Getting Your Small Business Investment Ready

Owner's Equity is rarely enough for running and growing a business. Every business owner thus aspires to make his or her business attractive for capital providers. Before approaching these capital providers, be they equity investors or lenders, it helps to do plenty of homework. 

Capital providers undertake rigorous assessments of the business to ensure that their investment is protected. While there are a lot of commonalities in the criteria used by equity and debt providers, there are some aspects that one category focuses on more than the other. An equity provider will look less at liquidity and more at long-term growth prospects given the longer horizon. Strategic aspects of the business's product or service will also get more attention from equity investors. Debt providers meanwhile will have a hawk-eye focus on liquidity, short-medium term prospects, leverage levels, and promoter credibility. Let's look at the most critical aspects that a business owner needs focus on before approaching a lender. 

To put it simply, any lender will focus on the '3 Cs': Character, Collateral, and Cash Flow. 

Why is CIBIL so important? 

CIBIL is a tangible proxy for the first 'C', Character. 

Prior to 2006, lenders relied on their credit teams to perform detailed assessments of a business's creditworthiness. This was especially true for MSMEs, which typically did not have an independent credit rating. 

CIBIL collects and maintains records of an individual's payments pertaining to loans and credit cards. Banks and NBFCs submit details to CIBIL on a monthly basis and these submissions are used to create Credit Information Reports (CIR) and credit scores. These scores are provided to credit institutions to help them evaluate credit worthiness.

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