Business Plan

Implementation

Block

3
MOBILISING RESOURCES AND START-UP
UNIT 10
Start-up Initiatives
UNIT 11
Mobilising Financial Resources
UNIT 12
Mobilising Non-Financial Resources

213
Business Idea
Selection and
Feasibility
  Start –Up Initiatives
UNIT 10 START –UP INITIATIVES

Structure
10.0 Objectives
10.1 Introduction
10.2 What is a Start-up?
10.3 Start-up India
10.4 Incubation Network in India
10.5 Atal Innovation Mission
10.6 Challenges Faced By Start-ups
10.7 Measures to Support Start-ups
10.8 Let Us Sump Up
10.9 Key Words
10.10 Answers to Check Your Progress
10.11 Terminal Questions

10.0 OBJECTIVES
After studying this unit, you should be able to:
x explain what is a start-up;
x describe the government initiatives towards development of start-up
ecosystem in India;
x explore the incubation network in India;
x enumerate the challenges faced by startups in India;
x discuss the measures to overcome the challenges faced by startups in
India; and
x discuss the growth and development of start-up ecosystem in India.

10.1 INTRODUCTION
As discussed in the previous units, entrepreneurship plays an important role
in the economic development of a nation, especially in the developing/
emerging economies like India. The demographics, economic environment,
and culture of entrepreneurship present in India make it an ideal environment
for entrepreneurship.
Entrepreneurship in India has grown significantly, and start-ups are
beginning to have a significant impact on the economy. Both in urban and
rural areas, there may not be an impressive rise in wage employment but
there are enough scope for self-employment. The emphasis, therefore, has
been on creating self- employed persons and entrepreneurs.

The Government of India has undertaken several initiatives and instituted

policy measures to foster a culture of innovation and entrepreneurship in the
215

 Mobilising country. In the recent years, a wide spectrum of new programs and
Resources and
Start-Up opportunities to nurture innovation have been created through engaging with
academia, industry, investors, small and big entrepreneurs, non-governmental
organizations and the most underserved sections of society.

India’s start-up ecosystem has become vibrant and mainstream in many ways
– in terms of job creation, in terms of solving consumer problems, and
creating products for the rest of the world. The Government is implementing
policies for the promotion and development of the start-ups which include
providing concessional credit, training in entrepreneurship development,
marketing assistance, research support etc. to inculcate entrepreneurial
culture especially among the first-generation entrepreneurs.

In this unit, you will learn about start-ups, the initiatives taken by the
Government of India to foster start-ups, the challenges faced by start-ups and
the measures adopted to overcome these challenges.

10.2 WHAT IS A START-UP?

Nowadays, the term "Start-up" has become very popular. Many people are
interested in becoming entrepreneurs and therefore seeking to start their own
businesses. The term start-up is not officially defined anywhere in the world,
so there are no fixed parameters as to what type of a venture can be
considered a start-up. Some of the definitions of “Start-ups” given by
prominent researchers in the field are discussed below:

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In India, start-ups have been defined under the “Start-up India” which is a
flagship initiative of the Government of India for development of a strong
start-up ecosystem.
An entity shall be considered as a Start-up: (for the purpose of Government
Schemes only)

1) If it is incorporated as a private limited company or registered as a

partnership firm or a limited liability partnership in India.

2) Up to ten years from the date of its incorporation/registration.

216

3) If its turnover for any of the financial years since Start –Up Initiatives

incorporation/registration has not exceeded INR 100 Crores.

4) If it is working towards innovation, development or improvement of
products or processes or services, or if it is a scalable business model
with a high potential of employment generation or wealth creation.
Note: An entity formed by splitting up or reconstruction of a business already
in existence shall not be considered a ‘Start-up’.
Considering the above parametersa startup may be defined as an innovative
firm that develops or offers innovative products, processes, or service. In
addition to innovative products and services, start-ups usually exhibit
several characteristics such as sustainable business model, fast growth,
and an early stage of business.

10.3 START-UP INDIA

India has the world’s third largest start-up ecosystem. The Government of
India launched the “Start-up India” initiative to empower start-ups in the
country. Start-up India aims at creating an ecosystem that nurtures innovation
and entrepreneurship in the country to foster sustainable growth and create
jobs on a large scale.
Start-up India was launched on 16th January 2016 to build a self-reliant India
and harness the potential of a nation bestowed with the largest youth
population in the world. A “19 Point Action Plan” was framedunder this
initiative to make India one of the largest start-up ecosystem in the world.
The 19 Point Action Plan was divided across the following 3 areas:
x Simplification and Handholding
x Funding Support and Incentives
x Industry-Academia Partnership and Incubation

Start-up India is expected to enhance the start-up ecosystem and its

performance. It is therefore important to know about the various programs
and policies which are implemented under this initiative to build a strong
start-up ecosystem.The following table gives summary of the 19 Point Action
Plan:

AREA ACTION PLAN OBJECTIVE

1.Compliance Regime To reduce the regulatory

based on Self- burden on Start-ups
certification thereby allowing them to
focus on their core business
and keep compliance cost
low.

2.Startup India Hub To create a single point of

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 Mobilising contact for the entire Start-
Resources and
Start-Up up ecosystem and enable
knowledge exchange and
access to funding.

3.Rolling out of To serve as the single

Mobile App and Portal platform for Start-ups for
interacting with
Simplification and Government and
Handholding Regulatory

Institutions for all business

needs and information
exchange among various
stakeholders.

4.Legal Support and To promote awareness and

Fast-tracking Patent adoption of IPRs by Start-
Examination at Lower ups and facilitate them in
Costs protecting
andcommercializing the
IPRs by providing access
to high quality Intellectual
Property services
andresources, including
fast-track examination of
patent applications and
rebate in fees.

5.Relaxed Norms of To provide an equal

Public Procurement platform to Start-ups (in
for Startups the manufacturing sector)
vis-à-vis the experienced
entrepreneurs/companies in
public procurement.

6.Faster Exit for To make it easier for

Startups Start-ups to windup
operations.

7.Providing Funding To provide funding support

Support through a for development and
Fund of Funds with growth of innovation
a Corpus of INR driven enterprises.
10,000 crore

8.Credit Guarantee To catalyse

entrepreneurship by
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 Fund for Startups providing credit to Start –Up Initiatives

innovators across all

Funding Support sections of society.
and Incentives

9.Tax Exemption on To promote investments

Capital Gains into Start-ups by mobilizing
the capital gains arising
from sale of capital assets.

10.Tax Exemption to To promote the growth of

Startups for 3 years Start-ups and address
working capital
requirements.

11.Tax Exemption on To encourage seed-capital

Investments above investment in Startups.
Fair Market Value

12.Organizing Start-up To galvanize the Start-up

Fests for Showcasing ecosystem and to provide
Innovation national and international
andProviding a visibility to the Start-
Collaboration Platform upecosystem in India.

13.Launch of Atal To serve as a platform for

Innovation Mission promotion of world-class
(AIM) with Self- Innovation Hubs, Grand
Employmentand Challenges, Start-
Talent Utilization up businesses and other
Industry-Academia (SETU) Program self-employment activities,
Partnership and particularly in technology
Incubation driven areas.

14.Harnessing Private To ensure professional

Sector Expertise for management of
Incubator Setup Government sponsored /
funded incubators,

Government will create a

policy and framework for
setting-up of incubators
across the country in public
private partnership.

15.Building To propel successful

Innovation Centres at innovation through
National Institutes augmentation of incubation
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 Mobilising and R&D efforts.
Resources and
Start-Up
16.Setting up of 7 To propel successful
New Research Parks innovation through
Modeled on the incubation and joint R&D
Research Park efforts between academia
Setup at IIT Madras and

Industry.

17.Promoting Startu-ps To foster and facilitate bio-

in the Biotechnology entrepreneurship.
Sector

18.Launching of To foster a culture of

Innovation Focused innovation in the field of
Programs for Students Science and Technology
amongst students.

19.Annual Incubator To support creation of

Grand Challenge successful world class
incubators in India.

6RXUFHStart-up India Action Plan Report 2016

The objective of the Action Plan is to give push to the start-ups in the
country. The plan envisions setting up of incubators across the country,
timely filing of patents, ease of starting up a venture, tax exemptions, and
also, creating a corpus fund etc. The programs under this initiative are
managed by a Startup India Team, which reports to the Department for
Industrial Policy and Promotion (DPIIT).

10.4 INCUBATION NETWORK IN INDIA

Incubators are typically known to provide support to new enterprises during
their early stages. Incubators are institutions that help entrepreneurs to
develop their business, especially in the initial stages. Incubator support
includes providing technological facilities and advices, network and linkages,
co-working spaces, lab facilities, mentoring and advisory support.

According to a report by NASSCOM titled “Start-up Catalysts-Incubators &

Accelerators 2020”, India has the 3rd highest number of programs for start-
ups in the world and 520+ incubators and accelerators in thecountry. These
incubators offer their own set of resources, network connections, and
infrastructure. The incubators in India can be broadly classified into four
categories:-
i) Government Incubators – Established/ Supported by Government

220

ii) Academic Incubators – Established in Academic Institutions (University, Start –Up Initiatives

Colleges)
iii) Corporate Incubators – Established and run by large corporates
iv) Independent Incubators – Established and run by private centres

Most incubators provide their physical infrastructure as one of the critical

offerings for the start-ups. These incubators have specialised labs and
equipment. Incubators also provide value added services like mentoring,
assistance with various IPR processes, legal, accounting and other business
services. Some incubators also provide access to capital. Most of the
incubators are supported under a government scheme.

Atal Innovation Mission was launched under the Start-up India initiative for
the establishment of sector-specific incubators based on the Public-Private
Partnership model. The NITI Ayog provides funding for the establishment of
the incubators under the Atal Innovation Mission. The Ministry of Micro,
Small and Medium Enterprises,Department of Science and Technology,
Department of Biotechnology, Department of Electronics and Information
Technology,and Department of Higher Education, with the active support of
NITI Ayogand the Department of Industrial Policy and Promotion are
involved in setting up the incubators.
Let us learn about some of the prominent incubation support provided by the
Government of India:

i) Ministry of Micro, Small and Medium Enterprises (MSME):

Ministry ofMSME established the National Small Industry Corporation
(NSIC) in 1955 to support and promote skill-based small businesses
making it one of the oldest known governmental institutions supporting
small businesses. NSIC has undertaken various initiatives largely aimed
at enabling small businesses with inputs around tendering, market access
and intelligence, promotion, credit and financing support, and training. In
order to impart training assistance in manufacturing and services sector,
NSIC had established NSIC Training cum Incubation Centre (NSIC-
TIC). There are more than 94TICs to offertraining and subsequent
support to trainees to establish their businesses.

The Ministry of MSME in 2015 launched A Scheme for Promotion of

Innovation, Rural Industries and Entrepreneurship (ASPIRE) to set
up incubation centres and foster innovation and entrepreneurship in the
country. ASPIRE provides financial assistance for setting up of
Livelihood Business Incubation (LBI) and Technology Business
Incubation(TBI).

The Livelihood Incubator incubates and empower low-end technology

based enterprises at the local level in rural areas, which enhances
employment generation and eliminates unemployment. On the other
hand, Technology Business Incubators incubate innovative or tech based
enterprises in the agro-based industry. In 2020-2021 there are 102 LBIs
and 22 TBIs Pan India.

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 Mobilising ii) Department of Science & Technology (DST) –TBI: The largest
Resources and
Start-Up supporter of incubation in India, DST, through National Science &
Technology Entrepreneurship DevelopmentBoard (NSTEDB), runs a
scheme called NIDHI-Technology Business Incubator.

The objective of NIDHI-TBIs is to assist start-ups which will create jobs

and wealth in alignment with national priorities by providing the
required technology/knowledge/innovation, to provide a quick
commercialization platform for technologies developed by them and to
offer cost-effective mentoring, legal, financial, technical & intellectual
property services to the start-ups.

iii) Department of Biotechnology (DBT)- BioNEST:Biotechnology

Industry Research Assistance Council (BIRAC), a not-for-profit state
owned enterprise under the Department of Biotechnology (DBT),
Government of India has launched, BioNEST(Bioincubators Nurturing
Entrepreneurship for Scaling Technologies) to provide Incubation
support to the Biotech / Life science based start-ups. Biotechnology
Incubation is different from the other incubation as biotechnology based
start-ups requires a large space for wet laboratory along with excellent
instrumentation facilities to conduct the experiments. The objective is
scaling up biotech incubation in India.

iv) Ministry of Electronics and Information Technology (MEITY): The

Technology Incubation and Development of Entrepreneurs (TIDE) was
launched by MEITY in 2008to set up and support Technology
Incubation Centres (TIC) in academic institutions to facilitate aspiring
entrepreneurs and students to build high quality startups/companies.The
objectives of this scheme include: bridging the gap between R&D and
commercialization, promoting R&D that is more product oriented, and
encouraging and accelerating development of indigenous products in
electronics and information technology. Under TIDE, a significant part
of the financial support given to incubators is for investment in startups.
The scheme also mandates that incubators provide physical space for a
period of two years and support, as needed to the startups.

v) Atal InnovationMission’s AIC and EIC: AtalInnovation Mission

supports the establishment of new incubation centres called Atal
Incubation Centres (AICs) and also helps in the upgradation of an
already established incubation centres called Established Incubation
Centres (EICs). Atal Innovation Mission(AIM) supports and encourage
start-ups in specific sectors such as manufacturing, transport, energy,
health, education, agriculture, water, and sanitation, etc. and provide
them with necessary infrastructure facilities and other value added
services.AIMs wokswith the aim of creating world-class incubation
facilities across the country.
In addition to providing physical infrastructure, the incubation centres
established under AIMs offer entrepreneurs access to mentorship, education,
business planning support, seed money, industry partnerships, training, and

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other elements required to support innovative start-ups.According to reports Start –Up Initiatives

68 AICs/EICs have been established by 2020-2021.

10.4 ATAL INNOVATION MISSION

Atal Innovation Mission (AIM) is Government of India’s initiative to create
and promote a culture of innovation and entrepreneurship across the length
and breadth of our country. AIMwas setup in 2016 by NITI Ayog with the
objective of developing programs and policies for fostering innovation and
entrepreneurship in different sectors of the economy. It runs various
programs for school students, budding entrepreneurs and incubators to
develop a strong entrepreneurship ecosystem.The Atal Innovation Mission
(AIM) have two core functions:
x Entrepreneurship promotion, and
x Innovation promotion.

The major initiatives taken under AIM are as follow:

1) Atal Tinkering Labs: In order to foster an innovative mindset among

students. School-based Atal Tinkering Labs (ATL) are being set up in all
districts in India by AIM. An ATL is a dedicated innovation workspace
where students from Grade VI to Grade XII can experiment with various
technologies like 3D Printers, Robotics, Internet of Things (IOT), and
Miniaturized electronics to create innovative solutions. The purpose of
this is to enable millions of students to develop a problem solving,
innovative mindset. There are more than 8,700 Atal Tinkering labs and
more than 70 lakhs students are actively engaged in these ATLs.

2) Atal Incubation Centres: In order to foster scalable and sustainable

business enterprises, AIM aims to establish new incubator centers called
Atal Incubation Centres (AICs) which will nurture innovative start-
ups.Incubation centres have also been set up through the efforts of
academia, industry, investors, entrepreneurs, government agencies, and
non-governmental groups in recent years. AIM also intends to upgrade
these Established Incubators Centres (EICs).

3) Mentor India: Atal Innovation Mission has established more than 8700
Atal Tinkering Labs across India, and Mentor India is a nation building
initiative organized by Atal Innovation Mission to engage human
resources to mentor students. Mentor of change serve as facilitators and
coaches who work tirelessly to ensure students develop future skills such
as design and computational thinking by providing their time and
expertise. Students gain valuable advice from industry leaders and put it
into practice by interacting with Mentors of Change and make tinkering
labs successful.

4) Atal New India Challenges: Atal New India Challenge is an initiative
of Atal Innovation Mission to foster innovation by providing grant-based
financial support to innovators who are working on products and
solutions based on advanced technologies which are of national
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 Mobilising importance and social relevance. As part of the Atal New India
Resources and
Start-Up Challenge, entrepreneurs are invited to create and demonstrate market-
ready products based on emerging technologies. The Indian government
will award grants up to INR 1 crore to the applicants showing capability,
intent, and promise to commercialize their technologies.

5) Atal Community Innovation Centre: Atal Community Innovation

Centers are being established in India with the goal of encouraging
entrepreneurship in underserved/underserved areas by providing the
required infrastructure and innovative environments. The ACIC focuses
on Tier 1 and Tier 2 cities, especially in the north-eastern part of the
country, as well as in Jammu and Kashmir and rural and tribal areas.

6) Atmanirbhar Bharat ARISE: The AtmaNirbhar Bharat ARISE-ANIC

program aims to foster research and innovation within Indian start-ups
and MSMEs to improve their competitiveness. In order to help catalyze
research, innovation and facilitate solutions to sectoral problems,
Aatmanirbhar Bharat ARISE-ANIC works in partnership with esteemed
Ministries and industries. The objective is to develop and supply a steady
flow of new, innovative products and solutions for the Central
Government Ministries / Departments, thereby enabling them to become
the first purchasers. 15 challenges were defined in the Aatmanirbhar
Bharat ARISE-ANIC Challenge Statement, which came from five
ministries: Ministry of Defence, Ministry of Food Processing Industries,
Ministry of Health and Family Welfare, Ministry of Housing and Urban
Affairs, and ISRO.
There are many other strategic campaigns run by AIM namely AIM-
PRIME Program, AIM-iCREST, Youth Co:Lab, AIM ICDK Water
Challenge, Zootopia 2021 and AIM-iLEAP to promote the culture of
entrepreneurship and innovation in the country.

Check Your Progress A

1) What do you mean by Incubation Network?

2) What is Livelihood Business Incubation Centre?

3) What is Atal Innovation Mission?

10.6 CHALLENGES FACED BY START-UPs

Startups are exploding everywhere at the moment like never before. Some of
these companies are able to make a significant impact on the global stage,
while others ultimately fail. Founders have witnessed time and time again
that the road ahead is not easy. In this section, we will discuss the main
challenges faced by start-ups.
1) Lack of Financial Resources: Availability of finance is critical for the
start-ups and is always a problem to get sufficient amounts. Startups are
often considered as high-risk loan areas and therefore banks are often
skeptical to provide them loans. Most of start-ups start working with
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 their own funds but the requirement starts increasing as the business Start –Up Initiatives

progresses. Scaling of business requires timely infusion of capital. Proper

cash management is critical for the success of the startups.

2) Poor Revenue Generation: Several start-ups fail due to poor revenue
generation as the business grows. As the operations increase, expenses
grow with reduced revenues forcing startups to concentrate on the
funding aspect, thus, diluting the focus on the fundamentals of business.
Hence, revenue generation is critical. The challenge is not to generate
enough capital but also to expand and sustain the growth.

3) Lack of Skilled Personnel: Start-ups normally start with a team

consisting of trusted members with complementary skill sets. Usually,
each member is specialized in a specific area of operations. But as the
start-up grows, the team may struggle to manage the operations
effectively. Thus, it is essential to recruit the right employees, not having
the right people sometimes could break the startup.

4) Ineffective Marketing Plan: Many Start-ups fail due to flawed

marketing strategy. The environment for a start-up is usually more
difficult than for an established firm due to uniqueness of the product.
Thus, the startup has to build everything from scratch.

5) Lack of Mentorship: Lack of proper guidance and mentorship is one of

the biggest problems that exist in the Indian startup ecosystem. Most of
start-ups have brilliant ideas and/or products, but have little or no
industry, business and market experience to get the products to the
market. It is a proven example that a brilliant idea works only if executed
promptly. Lack of adequate mentoring/ guidance is the biggest challenge
among startups.

6) Poor Business Plan: A lot of new businesses fail within the first year
because of inadequate planning. The startups might have innovative
ideas, but if their business plans lack perspective, they are destined to
fail. Or, they need to constantly redesign them in order to succeed.

7) Fierce Competition: Start-ups face stiff competition from established

companies that dominate the market and make it difficult for new
entrants to succeed. In addition, there is no shortage of companies with
innovative ideas that are launched constantly. If a start-up isn't able to
differentiate itself from the crowd for long, it will be swallowed up by
the competition.

10.7 MEASURES TO SUPPORT START-UPs

In spite of challenges and problems that start-ups are facing, Indian markets
provide a plethora of opportunities for startups, which have great potential to
create jobs and promote growth.Several startups have established themselves
in India, and related ecosystems have flourished. The support required for
fostering the start-up culture is spread across several dimensions, which are
discussed below:
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 Mobilising 1) Providing infrastructure facility: One measure of assisting start-ups is
Resources and
Start-Up providing workspace. These can include providing office space and some
basic facilities such as computers, printers, Wi-Fi, hardware, and
software that start-ups need for product development, lab facilities, etc.
Incubators provide subsidized physical space to new businesses in return
for monthly rent during the early phases of their operations.
2) Financial assistance: Fund raising is the most challenging part of
starting a business. A number of programs and policies have been
introduced by the government of India to ensure loans are easily
accessible to startups such as the Credit Guarantee Scheme and Stand-Up
Loans. Start-ups have a wide range of financing options available,
including funding by family members, friends, loans, grants, angel
investors, venture capitalists, crowd funding, etc.

3) Mentoring Support: Startups, especially the first generation of

entrepreneurs, may lack the necessary knowledge or connections to build
a successful business. Therefore, startups may seek advice from mentors
who can assist with practical issues and provide support. Mentors may
offer assistance to start-ups who have little experience or knowledge by
using their industry experience, expertise, and specialised knowledge.
Mentors may also offer one-on-one advice to startups.
4) Promoting Research and Development: In the early stages of a
company, research and development are the most challenging. It is
essential for startups to invest in research and development, especially if
they are dealing with technology. There are several government schemes
designed to encourage and assist entrepreneurs in their research and
development activities, such as Promoting Innovations in Individuals,
Startups and MSMEs (PRISM) scheme, Atal Innovation Mission, the
establishment of innovation centers and research parks, etc.

5) Providing Business Support Services: The startup support

organizations have a pool of service providers with expertise in HR,
marketing, accounting, and legal areas that can offer valuable advice and
services to start-ups for smooth functioning. These organizations also
helps the start-ups to collaborate with various ecosystem partners. In
order to encourage startups to collaborate with ecosystem partners, the
government has created a portal called ‘Start-Up India Hub’. The portal
allows the start-ups registered on it to connect with government entities,
investors, banks, incubators, accelerators, legal partners, consultants,
universities, and R&D institutions on a single platform.
6) Regulatory support: Entrepreneurs often believe start-up companies
face many legal and regulatory hurdles as they strive to establish
themselves. These obstacles consume their time and resources that could
otherwise be utilized for innovation. The government has therefore
relaxed various regulations in order to ease the regulatory burden on
start-ups. Start-ups can avail the benefit of self-certification. By filling an
online form, they can have their start-up formally registered without
paying any fee. Unlike other business enterprises they are exempted
226

 from prior experience/turnover criteria which is required for government Start –Up Initiatives

procurement and thus can apply for government tenders. As long as they
get a certification from the Inter-Ministerial Board, they are exempted
from paying income tax for 3 years. They are also exempt from capital
gains taxes.

7) Protection to Intellectual Property Rights: Frequently, we hear that

one company has claimed the right to an invention owned by another
company. While one company developed an innovative technology, a
similar product was launched by another company before it was
patented. Thus, it is imperative to protect Intellectual Property [IP].
Initiatives such as the Start-Up Intellectual Property Protection (SIPP)
facilitate the filing of Patents, Trademarks, and Designs by innovative
start-ups and their protection.
8) Global Tie-ups: Startups find it difficult to enter the international
markets and keep up with the international competition. Through the
government's Start-up India initiative, the Indian startup ecosystem was
made more connected to the global start-up ecosystem. G2G partnership,
participation in international forums and hosting global events have all
been instrumental in achieving these goals. These factors have made it
easier for start-ups to expand internationally.

Over the last five years, new systems and policies of the Government
have been put in place to strengthen the start-up ecosystem in the
country. The interventions being deployed by the Government are
fostering innovation driven entrepreneurial climate in the country.

CheckYour Progress B
1) List four major challenges faced by start-ups?
2) State whether the following statements are True or False:

i) Incubator support includes providing technological facilities to the

aspiring and existing entrepreneurs.
ii) India has the first largest incubator network in the whole world.

iii) The purpose of ATL is to enable millions of students to develop a

problem solving, innovative mindset.

iv) Start-ups cannot do business internationally.

v) Start-ups can avail the benefit of self-certification

3) Fill in the Blanks:

i) The National Small Industry Corporation (NSIC) was established in
the year ………..…

ii) ……………. a policy think tank of the Government instituted Atal

Innovation Mission.

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 Mobilising iii) The Government of India consider an entity as start-up up to
Resources and
Start-Up …………. years from the date of its incorporation/registration.
iv) ……………… helps the start-ups to connect with government
entities, investors, banks, incubators, accelerators, legal partners,
consultants, universities, and R&D institutions on a single platform.
v) TBI stands for ……………………… Business Incubators.

10.8 LET US SUMP UP

India’s start-up ecosystem has become vibrant and mainstream in many ways
– in terms of job creation, in terms of solving consumer problems, and
creating products for the rest of the world. The Government is implementing
policies for the promotion and development of the start-ups which include
providing concessional credit, training in entrepreneurship development,
marketing assistance, research support etc. to inculcate entrepreneurial
culture especially among the first-generation entrepreneurs.

A start-up is an innovative firm that develops or offers innovative products,

processes, or service. In addition to innovative products and services, start-
ups usually exhibit several characteristics such as sustainable business model,
fast growth, and an early stage of business.
The Government of India launched the “Start-up India” initiative on 16th
January 2016, to empower start-ups in the country to create an ecosystem that
nurtures innovation and entrepreneurship in the country to foster sustainable
growth and create jobs on a large scale. A “19 Point Action Plan” was
framed under this initiative which was divided across the following 3 areas:
Simplification and Handholding, Funding Support and Incentives and
Industry-Academia Partnership and Incubation.
Incubators are typically known to provide support to new enterprises during
their early stages. Incubators are institutions that help entrepreneurs to
develop their business, especially in the initial stages. Incubator support
includes providing technological facilities and advices, network and linkages,
co-working spaces, lab facilities, mentoring and advisory support.

The Ministry of Micro, Small and Medium Enterprises, Department of

Science and Technology, Department of Biotechnology, Department of
Electronics and Information Technology, and Department of Higher
Education, with the active support of NITI Ayog and the Department of
Industrial Policy and Promotion are involved in setting up the incubators in
India.

Atal Innovation Mission (AIM) is Government of India’s initiative which

was setup in 2016 by NITI Atyog to create and promote a culture of
innovation and entrepreneurship across the length and breadth of our country.
It runs various programs for school students, budding entrepreneurs and
incubators to develop a strong entrepreneurship ecosystem. The Atal
Innovation Mission (AIM) have two core functions: Entrepreneurship
promotion, and Innovation promotion.
228

Start-ups face number of challenges which are: Lack of Financial Resources, Start –Up Initiatives

Poor Revenue Generation, Lack of Skilled Personnel, Ineffective Marketing

Plan, Lack of Mentorship, Poor Business Plan, and Fierce Competition.

The support required for fostering the start-up culture is spread across several
dimensions, which are: Providing infrastructure facility, Financial Assistance,
Mentoring Support, Promoting Research and Development, Providing
Business Support Services, Regulatory support, Protection to Intellectual
Property Rights and Global Tie-ups.

10.9 KEYWORDS
Incubators: institutions that help entrepreneurs to develop their business,
especially in the initial stages.Incubator support includes providing
technological facilities and advices, network and linkages, co-working
spaces, lab facilities, mentoring and advisory support.

Livelihood Incubator Centres: LICs incubates and empower low-end

technology based enterprises at the local level in rural areas, which enhances
employment generation and eliminates unemployment.
Start-up: an innovative firm that develops or offers innovative products,
processes, or service. In addition to innovative products and services, start-
ups usually exhibit several characteristics such as sustainable business model,
fast growth, and an early stage of business.
Start-up India: a flagship initiative of Government of India to empower
start-ups in the country by creating an ecosystem that nurtures innovation and
entrepreneurship in the country to foster sustainable growth and create jobs
on a large scale

Technology Business Incubators: TBIs incubate innovative or tech based

enterprises.

10.10 ANSWERS TO CHECK YOUR PROGRESS

B) 3. i. True ii. False iii. Trueiv.Falsev.True

4. i. 1955 ii. NITI Aayog iii.10 iv. Start-up India Hub v. Technology

10.11 TERMINAL QUESTIONS

1) What do you understand by the term start-up?

2) What is Start-up India Initiative? Discuss the 19 Point Action Plan of
Start-up India.

3) What do you understand by the term Incubator? Enumerate the

prominent incubation support provided by the Government of India.

4) Explain ASPIRE scheme by the Ministry of MSME.

5) What are the features of Atal Innovation Scheme?

229

 Mobilising 6) Enumerate the reasons for failure of Start-ups.
Resources and
Start-Up
7) Discuss the measures deployed by the Government to strengthen the
start-up ecosystem in India.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
‡ KWWSVZZZVWDUWXSLQGLDJRYLQ
‡ ,YDWXUL9. *DQHVK0  7KH0DQXDOIRU,QGLDQ6WDUWXSV
Penguin Random House.
‡ 9DVLVKWD *   6WDUWXS   -XVW 6WDUWXS $ 6WHS E\ 6WHS *XLGH RQ
How to Become a Successful Entrepreneur. Notion Press.

230

  Mobilizing Financial
UNIT11 MOBILIZING FINANCIAL Resources

RESOURCES

Structure
11.0 Objectives
11.1 Introduction
11.2 Need and Importance of Financial Resources
11.3 Sources of Finance
11.3.1 On the Basis of Duration
11.3.2 On the Basis of Ownership
11.3.3 On the Basis of Source of Generation of Funds
11.3.4 Other Sources of Finance
11.4 Details of Various Sources of Finance
11.5 Factors Affecting Selection / Choice of Sources of Finance
11.6 Prime Minister’s Employment Generation Programme (PMEGP)
11.7 MUDRA Yojna
11.8 Let Us Sum Up
11.9 Keywords
11.10 Answers to Check Your Progress
11.11 Terminal Questions

11.0 OBJECTIVES
After studying this unit, you should be able to:

x acquire the necessary knowledge and skills regarding resource

mobilization and financial resources management;

x equip with a detail knowledge of various types of sources of funds

available for financing to a business organizations;
x describe the various criteria which are generally used by the lending
organizations/ agencies to grant loans to the business organizations;

x analyse advantages, disadvantages and limitations of various sources of

funds to help the students in taking appropriate decision in this regard;
and

x describe government initiatitives like Prime Minster Employment

Generation Programme (PMEGP) and MUDRA Yojna.

11.1 INTRODUCTION
It is well known that every business organization requires finance for its
business operations. Finance is also known as blood of the business and

231

 Mobilising without finance the business cannot be run. Mobilizing financial resources is
Resources and
Start-Up an important task that an entrepreneur needs to perform.
The resources which are generally required by an entrepreneur may be
classified into two categories namely financial and non-financial (human
resources). As we all know that finance is known as blood of the business, it
becomes necessary to ensure adequate arrangement of finance / funds not
only for a new venture but also for existing business organizations for their
growth oriented financial needs. The financial needs of a business vary as per
the nature of business activities or business operations performed by business
organization along-with the size of the business organization. For example, a
manufacturing enterprise may require more financial resources as compared
to service sector enterprise. The reason for requiring more capital by
manufacturing enterprise is that they are more capital intensive because of the
huge investment in their plant and machinery infrastructure. In this unit, you
will develop an understanding about various kinds of financial resources
available and the ways to evaluate/conduct the cost benefit analysis of the
various resources and factors to be considered while making a good selection
of financial resources.

11.2 NEED AND IMPORTANCE OF FINANCIAL

RESOURCES
Finance is required by businesses for not only to meet their startup related
costs but also for meeting the financial needs of day to day business
operations. Finance is needed to establish a business, to run it, to modernize it
and to expand or diversify it. Finance is also needed for buying variety of
assets both tangible (such as land, buildings, machinery, furniture) and
intangible like trademarks, patents, technical expertise and other assets. Hence,
every entrepreneur has to look for various sources of finance so that the
entrepreneur can meet the financial needs of their business. It is needless to
mention here that a systematic assessment of the financial needs of the
business organization would be very important in determining the sources of
finance. It is also important to note here that the funds are required not only to
start business activities but also for growth and expansion needs of the business
as well. The finance is required for the following purposes:

1) Fixed capital requirements: The fixed capital is required for the purpose
of purchasing fixed assets like land, building and plant and machinery.
Therefore, financing of fixed capital is important. For the business you
should also note that this fixed capital requires long term financing.
Hence, the selection of source of finance is very important. The cost of
capital is also involved in the long term capital financing. It is also
important to note that the fixed capital requirement for a business may
vary as per the nature of business. For example, the manufacturing sector
enterprise may require more fixed capital as compared to service sector
enterprise.

2) Working capital requirement: A business not only needs finance for its
fixed assets but also requires adequate amount of finance for its working
232

 capital requirements. Despite varied nature and size of the business, Mobilizing Financial
Resources
finance will be required for day to day business operations. Hence, to
ensure smooth running of the business operations, adequate working
capital should also be arranged. The working capital may be required for
the purpose of obtaining current assets and meeting day to day expenses of
the business.

In addition, the business also requires finance for expansion,

modernization, technological requirements, innovation etc.

11.3 SOURCES OF FINANCE

Understanding of sources of finance is very important as it provides detail of
various types of sources of funds available which can be utilized to finance a
business organization. There are several financial institutions / organizations/
agencies both governments owned as well as privately owned which are
engaged in financing the business organizations for their various financial
needs. A good understanding of various sources of finance will always be
helpful in arranging finance for business organization effectively and
efficiently.
There are different basis on which the sources of finance can be classified.
The detail classification of various sources of finance is as follows:

11.3.1 On the Basis of Duration

On the basis of duration, the sources of finance can be classified as: 1) Short-
term sources 2) Medium-term sources, and 3) Long-term sources. Let us learn
them in detail.

1) Short-Term Sources

When funds are required in the business for a period not exceeding one year
are referred as short-term requirement of funds. The short term requirement
can be met through the short term sources of finance. Short term finance may
be required for meeting financial needs towards arranging current assets and
also to ensure stock of raw materials in the business. Seasonal businesses
require more short-term funds for the purpose of various day to day
requirements of their business. They are required to maintain the appropriate
level of inventory stocks including raw materials and paying wages to labor
during the season when production level increases in peak season. The
following are some of the short term sources of finance:
x Trade Credit
x Banks
x Commercial Papers
x Factoring

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 Mobilising 2) Medium-Term Sources
Resources and
Start-Up
Medium term sources of finance are used in businesses when the funds are
required for a period of more than one year but generally up to three or five
years. The following are some of the medium term sources of finance:
x Loan from commercial banks
x Financial Institutions
x Public deposits
x Lease financing

3) Long-Term Sources

When funds are required for a period of more than 5 years, are known as long
term fund requirements and requires a long term source of finance. There are
different long term sources of finance like issuing shares and debentures and
also some relates with long-term borrowings and loans from various financial
institutions. Long term finance is generally required to purchase fixed assets
in the business like land, buildings and machinery, equipments and other
fixed assets needed to setup a new business as well as expansion of the
existing business operations. The following are some of the long term sources
of finance:
x Loan from commercial banks
x Loan from financial Institution
x Shares
x Debentures
x Retained Earnings

11.3.2 On the Basis of Ownership

On the basis of ownership, the sources of funds may be categorized as: 1)
Owner’s fund, and 2) Borrowed fund. Let us learn them in detail.

1) Owner’s Fund

Owner funds refer to funds which are brought by owner into the business.
Owner’s fund may come from sole proprietor, partner and shareholders (in the
case of a company structure). Apart from the capital or fund invested by the
owners, this type of fund also includes the profits which are reinvested in the
business and generally termed as retained earnings. The following are some of
the sources of finance which can be considered under the category of owner’s
fund:
x Personal Sources of finance
x Equity shares / Equity capital
x Retained Earnings

234

2) Borrowed Fund Mobilizing Financial
Resources
Borrowed funds are the funds which are borrowed from someone else or from
some financial institutions in the form of loans and other borrowings. This may
include: loans from commercial banks, loans from various financial
institutions, and also through issue of debentures, getting public deposits and
trade credits as well. The borrowings can also be considered as debt capital as
in this type of capital the owner is supposed to repay the borrowed amount
with interest. The debt capital allows an entrepreneur to keep complete
ownership and control of the business. The debt capital also increases the
liability side of the balance sheet because the entrepreneur needs to pay with
interest at a specific due date. The following are some of the important sources
of funds which may be kept under the category of borrowed funds:
x Commercial banks
x Financial Institutions
x Debentures
x Borrowings from friends and relatives
x Public deposits
x Lease financing

11.3.3 On the Basis of Source of Generation of Funds

Sometimes the sources of funds are categorized on the basis whether the funds
are being generated from the various sources within the organization or the
funds are generated from outside the organization through external sources. Let
us discuss them in detail.

1) Internal Sources of Funds

When funds are arranged and generated within the organization is referred to
internal sources of funds. The various internal sources of funds are as follows:
x Equity share capital
x Retained Earnings

2) External Sources of Funds

When the funds are generated through some external organizations/ institution
or parties are referred to external sources of funds. The following are some of
the external sources of funds:
x Loans from banks
x Financial institutions
x Public deposits
x Debentures
x Lease financing
x Commercial papers
x Trade credit
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 Mobilising x Factoring
Resources and
Start-Up
11.3.3 Other Sources of Finance
There are some other sources of funds which are as follows:
x Angel Investors
x Venture capitalists
x Crowd funding
x Deferred Income

Check your progress A

1) List out two purposes for which the finance is required.

2) What do you mean by borrowed fund?

3) List out five external sources of finance.

4) State whether the following statements are True or False:

i) Equity share capital is an external source of funds.
ii) Retained earning comes under the internal sources of finance.
iii) Debentures are long term sources of finance.
iv) Trade credit relates with the internal sources of finance.
v) Commercial papers provide short term financing.
5) Fill in the Blanks:

i) ……………………… is known as blood of the business.

ii) Fixed capital requires ……………………… financing

iii) ………………….. may be required for meeting financial needs

towards arranging current assets.

iv) Apart from the capital invested by the owner, the owner’s fund also
includes the ………………….. which are reinvested in the business.
v) When funds are required for a period of more than …………….,
they require a long term source of finance.

11.3 DETAILS OF VARIOUS SOURCES OF

FINANCE
Let us now discuss about the various sources of finance which have been listed
in the previous section in detail:

1) Trade Credit

Trade credit is a very common form of credit which is used in the business.
Trade credit is the credit which is generally extended by one trader to another
for various goods and services in their business. Trade credit is generally used
236

as a short term source of fund. The trade credit facilitates the purchase of Mobilizing Financial
Resources
supplies, goods and materials without immediate payment to the vendor.
Further, trade credit is offered to those customers having good image towards
financial standing and handling or good paying capacity. How much credit and
the period for which the credit facility would be extended depend upon various
factors like image of the buyer / entrepreneur, financial position of the vendor,
and also the quantity of goods to be purchased.

Advantages of Trade Credit: Trade credit has the following advantages:

i) Easy availability of trade credit particularly for those companies /

business organizations having strong financial positions.

ii) May be used as continuous source of funds.

iii) Good amount of credit can be obtained in case of good credit worthiness
of the buyer which is known to seller.

iv) Trade credits are also flexible in nature.

v) From seller point of view, trade credit may contribute significantly in
increase of the sale of the seller.
Disadvantages / Limitations of Trade Credit: Following are the limitations
of trade credit:
i) The main disadvantage or limitation of trade credit as a source of finance
is that it is not much useful source of finance for those business
organizations / companies which are financially weak.
ii) Sometimes the cost of trade credit may be high.

iii) A limited amount of fund can be generated through this source of fund
and would be available only for a short period of time.

2) Factoring
Factoring refers to a kind of ‘financial service’ under which the ‘factor’
renders various kinds of services like discounting of bills (with or without
recourse) and also collection of client’s debts. Under this mechanism, the
receivables relating to sale of various goods and services are sold to the
‘Factor’ at a certain discounting rate. This would be the responsibility of the
‘Factor’ to collect debt amount from the buyer. The Factor also provides a
protection against any bad debts losses to the firm if the method of factoring
is a non-recourse method. There are generally two methods through which
the factoring can happen. These are recourse and non-recourse method.
Under the recourse factoring method, the protection is not given to the client
against any risk of bad debts. However, in non-recourse method of factoring,
the entire risk of credit is assumed by the ‘Factor’ and ensures a protection to
the client against any bad debt amount. This means that entire amount of the
invoice is to be paid to the client in case of any bad debt. There are some
organizations like Canbank Factors Ltd. And SBI Factors and Commercial
Services Ltd. engaged in providing factoring services.

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 Mobilising Advantages: The following are some of the advantages of the factoring as a
Resources and
Start-Up source offinancing:
i) Obtaining funds through factoring is easy and does not include much
legal formalities as compared to other sources like IPO, issuing shares
and debentures where many legal formalities need to be performed to
raise capital.
ii) By using the Factoring method of financing, the cash flow can be
maintained effectively and be used for paying liabilities promptly.
iii) The client would be free from any kind of risk relating to the bad debts in
case of non-recourse method of factoring is used.
Disadvantages/ Limitations: The limitations of the factoring as a source of
finance are as follows:

i) This source of finance may be expensive particularly where the invoices
are of small amounts.

ii) The cost of raising finance through Factoring is also more costly because
of the charges of ‘Factor’ when compared with other sources of funds.

3) Commercial Paper

Commercial Papers are very important source of funds for short term period to
meet the various short term financial needs of a business. Commercial papers
are unsecured promissory notes to raise funds for a short period ranging from
90 days to 364 days. These are issued by primary dealers (PDs) and some all
India Financial Institutions. Commercial paper may be a good source for
getting large amount of funds but for a short period of time. The regulation of
commercial papers comes under the purview of the Reserve Bank of India
(RBI) and generally firms and institutions having good credit are allowed to
issue the commercial papers. As the RBI does not want to risk the funds, only
the firms having good credit rating can arrange finance through the commercial
paper.

Advantages of Commercial Paper: The advantages of commercial paper

are as follows:

i) As Commercial Papers are generally issued on an unsecured basis and

does not impose many restrictions.

ii) The Commercial Paper is a freely transferable instrument; it can help in

maintaining high liquidity in the business.

iii) The business organizations can also use their excess funds in commercial
papers and this may help them in generating good return on the same.
iv) It offers flexibility and a commercial paper may provide a continuous
source of funds.

Disadvantages/Limitations of Commercial Paper: The disadvantages/

limitations of commercial paper are as follows:
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i) Generally, financially high rating organizations having good credit Mobilizing Financial
Resources
records are allowed to raise money through commercial paper.

ii) It becomes difficult for small firms to arrange finance from this type of
source.

iii) The commercial paper can be used just for only the short term financing
of the business organizations.

4) Debentures
Debentures are also a good source of funds particularly as a long term source
of fund. Debentures are the debt instruments which are issued at a fixed rate of
interest. Debenture holders are considered like creditors of the company as
they have paid a certain amount to the company. It is the obligation of the
company to repay the amount with interest at a certain date generally referred
as maturity date or due date.

Advantages: The advantages of debentures are as follow:

i) Debentures are preferred by those investors who want a fixed income at
lesser risk.
ii) For company, arranging finance through debentures does not dilute
control of the equity shareholders on the management and control
because a debenture does not carry voting rights.
iii) The company does not require distributing its profit to debenture holders
and hence, it may be a kind of advantage to the company particularly
when the company earns huge profit.

Disadvantages: The disadvantages of debenture are as follows:

i) The main disadvantage of debenture is that it puts a permanent burden on

the earnings of the company and hence, it may have more risk
particularly when there is a reduction in the earnings of a company.

ii) The other disadvantage is that with the issue of debentures, the
company’s borrowing capacity reduces.

5) Personal Sources of Finance

To a new startup, personal sources of finance are very important where
entrepreneur uses his / her own money for his/her venture. This is the least
expensive source of the finance and is important because the lenders also see
that how much money is to be invested by the entrepreneur.
Advantages: The main advantages of this source of finance are as follows:

i) Entrepreneur can arrange finance for his/her business either without
interest or at a low interest rate.

ii) It does not increase any external liability. Also, it does not require many
legal formalities to perform in arranging finance for the business as this
investment is done by the entrepreneur itself.
239

 Mobilising iii) It also helps in convincing other external investors to attract fund
Resources and
Start-Up because external fund providers/lenders would like to see how much
money is invested by the entrepreneur.
Disadvantages/Limitations: The following are the disadvantages of this
source of finance:
i) This type of financial sources may only provide a very limited finance
for business which may be adequate for a micro or small businesses. This
may not be appropriate for a medium or large kind of enterprises where
huge money is required.

ii) Through this source only a limited amount can be arranged for the
business activities because of financial resource limitation of the
entrepreneur.

iii) This source of fund is about the risk of the investment in case of any
adverse situation occurs in business which may reduce the profit.

6) Share Capital / Equity Shares / Issue of Shares

When the capital is obtained by issue of shares is referred to as share capital.
It is a very common source of fund which is generally used by a company.
Regarding the share capital, it is important to note that the capital of company
is divided into small units which are termed as shares and each share has its
nominal value.

For example, if a company is issuing 10,000 shares of Rs. 10 each then the
value of share capital of that company would be Rs. 100,000. The persons
holding shares are known as shareholders of that company and are entitled to
get dividend declared by the company. There are two types of shares which
are known as equity shares and preference shares. When the capital is raised
by issuing equity shares, the obtained capital in this manner is known as
equity share capital. The capital raised by issuing of preference shares is
known as preference share capital. The details of the equity shares and
preference shares are as follows:

a) Equity Shares

Equity shares are very important shares generally used to raise long term
capital for the company. The persons holding equity shares are known as
equity shareholders and they get ownership in the company when they buy
shares of the company. This is the reason that the capital provided by equity
shareholders is also known as ownership capital. As owner of the company,
the equity shareholders are entitled to get a portion of profit known as
dividend which is declared by the company on the basis of its earning. At the
same time because of being owner of the company, the equity shareholders
have also to bear risk but their risk and liability is limited up to the capital
contributed by them to the company which they have invested by purchasing
shares in that company. Needless to mention here that an existing company
also issue shares to general public through stock market operations for the
purpose of raising funds for its growth and development operations.
240

Advantages: The advantages of equity share capital are as follows: Mobilizing Financial
Resources
i) The advantage of raising capital through equity share is that by using this
source of finance, the company can raise capital for its long term capital
needs.
ii) Amount raised through equity shares can be utilized for a long period of
time and the capital acquired through this mode will be permanent capital
in nature.
iii) Raising capital through equity shares also ensures participatory and
democratic management and control of the company as the shareholders
are entitled to vote in company.
iv) The other advantage is towards attracting and retaining key employees.
Benefits of listing on a stock exchange helps more access to future
financing for growth and expansion needs of the business.
v) The other advantage of this method of financing is that it can provide
adequate finance for the expansion and growth needs of the business
where huge financial resources are required.
Disadvantages/ Limitations: The disadvantages of equity share capital are as
follows:
i) Equity capital financing requires fulfilling lot of legal formalities and that
is why sometimes it might not be appropriate for micro and small
businesses.
ii) The other disadvantage is regarding the complexity and concerns relating
to the high cost of capital.
iii) From shareholders point of view, the biggest disadvantage is that it offers
fluctuating returns on the investment.
iv) The cost of capital is comparatively high as compared to other sources of
funds because of costs involved in performing legal formalities and other
processes in raising funds.

b) IPO (Initial Public Offerings)

When a company which is previously unlisted in the stock market offers its
shares for sale to the general public is known as IPO (Initial Public
Offerings). To raise money through IPO may require the following:
x Consistently good growth rate of the company
x A good record of earnings through business operations
x A good entrepreneurial / management team along-with the experienced
and strong board of directors in the company.

The advantage of IPO is that through this, a business organization can raise
adequate finance particularly for its expansion and growth needs. Regarding
disadvantage of IPO kind of source of fund is towards dilution of funder’s
ownership along-with the loss of control to some extent in the company. It
241

 Mobilising increases cost of capital in raising funds because of several legal expenses
Resources and
Start-Up involved in filing and reporting of various details of the company.

c) Preference Shares

Preference shares are used to raise preference share capital and the people
holding preference shares may be referred as preference shareholders.
Preference Shareholders have a preferential position over equity shareholders
towards receiving a fix rate of dividend and receiving their capital in case of
the claim settlement.
Advantages: The advantages of preference share capital are as follows:
i) Raising finance through preference shares does not affect the management
and control of the company because preference shareholders do not have
the voting rights in the company.
ii) From shareholders point of view, the preference shareholders get fixed
return on their invested capital and hence, they do not carry much risk of
fluctuations.
Disadvantages: The disadvantages of preference share capital are as follows:
i) The preference shareholders get dividend on preference shares only when
the company earns profits and hence no assured return on investment
made by preference shareholders.

7) Retained Earnings

Retained earnings are that portion of profit which is not distributed among
shareholders and is kept reserved for the purpose of reinvesting in the business.
Generally, retained earnings are used for working capital, allocation towards
debt obligations and also for meeting some expenses towards fixed assets
purchase. As retained earnings is an internal source of financing and hence,
depends on various factors like age of the company, the net profit of the
company and also the dividend policy of that company.
Advantages: The advantages of retained earnings are as follows:
i) The main advantage of retained earnings as a source of finance is that it
offers a permanent kind of source of funds for business organization.
However, the fund raised by this method may vary as per various factors
mentioned above like age and size of the company, the net profit from the
business operations along-with dividend policy of the company.
ii) This source of fund does not include any explicit cost of raising capital.
iii) Retained earnings also offer more flexibility in terms of financing.
Disadvantages / Limitations: The following are some of the disadvantages of
the retained earnings using as a source of fund:
i) Excessive usage of retained earnings as a source of financing for business
activities may cause dissatisfaction among some of the shareholders as
there would be lower amount towards the dividend.
242

ii) The other disadvantage or limitation of this source of fund is that it is an Mobilizing Financial
Resources
uncertain source of fund as this can be used only when profit is generated.
This may be uncertainty characteristics regarding fluctuations in the profit
earned by the business organization.

8) Friends and Relatives

Though, most of the entrepreneurs are seen to look for their own personal
funds to finance the business activities / operations. Sometimes they try to look
for funds from their friends, relatives and other family members as well who
might be willing to invest in business activities but they do not want any risk of
running a business. Generally the fund generated from this source of fund
would be in the form of equity financing in which the friends/ family members
and relatives receive an ownership interest / stake in the business. However,
based on nature, sometimes this type of source of fund may also be in the
category of borrowings especially in case when friends and relatives might not
be interested to take any risk of the business and would like to get their money
with interest without any risk. In such a situation, the financing obtained by
friends and relatives may be in the form of borrowings.
Advantages:The advantages of this source of funds are as follows:

i) The major advantage of this source of fund coming from friends, family
members and relatives is that it is very easy to get funds from them
without having many formalities to perform. However, sometimes a little
bit legal formalities may have to perform as per the nature and amount of
the investment.

ii) The other big advantage towards raising funds under this manner is that it
is also not very costly.

Disadvantages/Limitations: The disadvantages of this source of fund are as

follows:

i) It provides small amount of funds and may be appropriate for financing
small businesses or new ventures at the early stage.

ii) This type of source of fund may not be appropriate in arranging adequate
finance for the expansion and growth needs of the business organization.

9) Financial Institutions

There are various specialized financial institutions which are established by
central government and also by state governments. For example like SIDBI
which is established by central government to provide loan and other
financial support to small sector business organizations. Similarly, there are
SFCs (State Financial Corporation) which acts for providing financial
assistance and support to business organizations in the respective states.
These financial institutions provide financial assistance to medium term and
also long term duration. As these financial institutions are supposed to
promote industrial development, they are also known as development banks.
Advantages: The advantages of financing through financial institutions are as
follows:
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 Mobilising i) They provide long term finance which is very important for obtaining
Resources and
Start-Up fixed assets for the business.
ii) These financial institutions also provide various kind of technical and
managerial support to the business organizations if requested.

iii) These institutions provide funds even when there is a slowdown or

depression in the economy / market when it becomes difficult to raise
funds from other sources.
Disadvantages / Limitations: The disadvantages of this source of financing
are as follows:

i) The major limitation of this source of fund is that getting loans involves
many processes and procedures.

ii) The criteria which is adopted to grant loans and advances to business
organizations is also very rigid.

10) Commercial Banks

Commercial banks are very good source of funds for any duration and for a
wide range of purposes. Regarding duration, the commercial banks gives
loans of all kind of durations like loans for short term duration, medium term
duration and also for a long term duration. Short term loans are the loans
which are given by the banks for less than one year duration. Medium term
loans are provided for three or more years but not greater than five years.
However, the long term loans are those loans which are given for a period of
more than five years. This type of loans are generally required by large
industries/ or by business organizations for meeting their long term financial
needs of rapid growth and long term expansion plans. Similarly, the
commercial banks provide loans to both the new ventures/ startups and also
to existing enterprises. The commercial banks are run under both the
government ownership as well as under the private ownership. When the
ownership is with the government they are said government commercial
banks / public sector banks operating under the government. The following
are some of the ways through which commercial banks provide loan
facilities:

x Overdraft facility: Overdraft facility is a facility through which a bank

offers / allows its customers / borrowers to withdraw more funds in
excess to the balance available in the customers/borrowers account for a
specific period of time.
x Loans of different durations (short term, medium term and long
term loans) and advances:Loans are known as advances as lump sum
amount which is given to the borrower against some security.
x Cash credit:A cash credit is very important particularly as a source of
finance for working capital arrangement. In this kind of facility, a bank
permits a borrower or the customer to withdraw money as per the
predetermined sanctioned credit limit against some tangible security or
guarantees.
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x Discounting of bills: Bills receivable are created against credit sales of Mobilizing Financial
Resources
some goods and services. In this process, the seller of goods draws a bill
on the buyer of some specific amount of the transaction. When the bill is
accepted by the buyer, the drawer (seller) of the bill can move to the
bank requesting discounting of the bill. Based on the creditworthiness of
the buyer, bank purchases or discounts the bill and hence, provides a
specific amount to the drawer (seller) of the bill. It is also important to
note here that the credited amount that is provided to the drawer (seller)
would be less than the bill amount.
x Letter of Credit: The letter of Credit is a non fund based mechanism for
the purpose of arranging finance for working capital relating to purchase
of goods and services. In the letter of credit mechanism, this is issued by
the buyer’s banker on request of buyer. The credit is issued in the favor
of seller in which buyer’s banker issues / gives an undertaking to seller
that the buyer’s banker will pay up to a certain amount to the seller. This
payment will be made in case if the buyer is not able to pay the
transaction amount.
Advantages The advantages of financing through commercial banks are as
follows:

i) Interest rate is comparatively lower as compared to raising finance from

other private sources / lending organizations providing loan facility.
ii) The bank loan can also be obtained under the various schemes of the
government like MUDRA Yojna, Startup India initiative and make in
India initiative of the government.
iii) Incentives and subsidies can be obtained under various schemes of the
government while taking loans from the commercial banks as most of the
financial schemes and incentives are generally routed through commercial
banks.

iv) Banks provide adequate finance as and when needed by the business
organizations and also provide technical support sometimes as per request.
Disadvantages/Limitations: The disadvantages of this source of finance are
as follows:

i) The main disadvantage is that it is difficult for getting finance sometimes
for those business organizations which are small and are not having very
strong financial position.

ii) Sometimes, some restrictions are imposed on the business organizations

towards granting loan facility to the business organizations especially for
those business organizations which are not having very strong financial
indicators.

11) Public Deposits

When the business organizations directly raise deposits from the general public
is known as public deposits. In case of public deposits, the firms are supposed
to offer a higher interest rate on the public deposits as compared to the interest
245

 Mobilising rates provided by the banks so that the business organizations can attract
Resources and
Start-Up adequate public deposits. Under this method the depositors are required to fill
the appropriate form of deposit of that business organization and in return the
business organization is supposed to issue the deposit receipt to the depositor
to make the transaction happen. However, it is important to note here that
business organizations looking for public deposits as a source of finance need
to follow all rules and regulations made for such purposes of accepting public
deposits as accepting public deposits are regulated by RBI. This source of fund
may also be used for short term and also for medium term duration.
Advantages: The advantages of public deposits are as follows:

i) The biggest advantage of public deposits as a source of finance is that it

is easy and simple and involves less legal formalities as compared to
legal formalities which are in raising finance through IPO or equity
shares.

ii) In this case of financing, the management and control of the business
organization remains with the owner of the business organization as the
depositors would not have any voting rights in the business organization.

iii) The other advantage is regarding the lower cost of capital as compared to
the cost of capital through borrowings.
Disadvantages/Limitations: The disadvantages of public deposits are as
follows:

i) It is not very effective source of finance because it may also happen that
public would not respond and deposit adequate money to the business
organization / company when the business organizations really requires
money for its business operations.

ii) Limited amount of funds can be obtained under this source of finance
and the new companies / business organizations may find it difficult to
raise funds under this source of finance.

iii) Generally funds are provided for short term and medium term duration.

12) Lease Financing

Lease financing can be generally used for such kind of assets which becomes
obsolete quickly. A lease can be understood as a contract between two parties,
where one party allows or gives right to use some specific assets in return for a
periodic payment that may be referred as lease rent. The owner of the assets is
known as ‘lessor’ while the other party which will be using the assets is
referred as ‘lessee’. The various terms and conditions to use the said assets are
mentioned in the contract done between ‘lessor’ and ‘lessee’.
Advantages: The advantages of Lease Financing are as follows:

i) The main advantage of lease financing as a source of finance is that it

helps the ‘lessee’ to get asset with a lower investment in the said asset.

ii) It is also easy and involves only a little bit legal formalities like making
246 contract between the parties.

iii) Financing assets through this method may be helpful in ensuring good Mobilizing Financial
Resources
availability of cash for other business operations. In this source of finance,
the asset would be acquired through lease finance and only some amount
of cash is to be invested in getting that asset.
Disadvantages/Limitations: The disadvantages of Lease Financing are as
follows:

i) The main limitation of this method is that lease agreement may impose
some kind of restrictions on using the asset which is taken through lease
finance. Similarly, restrictions may also be imposed towards any kind of
modifications in the said asset.

ii) It also increases the payout obligations of the firm as the firm need to pay
the rental amount periodically.

iii) The ‘lessor’ remains the owner for the asset which is acquired through
lease finance.

13) Angel Investor

Generally, an angel investor is referred to as an individual who is ready to
provide funding for such kind of start-ups, which are not able to get funding
from any other institutions / sources of finance. These angel investors
generally provide fund in exchange for an ownership stake in the start-up. It
is also to be noted that in most cases, angel investors have been found as the
last option for start-ups that don’t qualify for bank financing and may be too
small to have interest in a venture capital (VC) firm.

The main advantage of the financing through angel investor is that they can
provide the seed capital for the business. They may provide a good source of
finance when the other investors and lenders have denied funding the new
venture based on their evaluation of the proposed opportunity for which the
fund is required. The other advantage of angel investors is that they are good
source for financing private sector business organizations / companies.

This source of fund is very much useful for creative and innovative business
ideas. However, if we see the disadvantage of the angel investor, we can say
that in this method of financing the owner has to sacrifice some portion of the
ownership in the business.

14) Venture Capitalists

Venture capital firms are the firms which generally comprises a group of
professional investors. Venture capital financing refers to that type of
financing that comes from professional companies or individuals specially
investing in growth oriented privately held companies. The capital may come
from various sources like individuals, corporations, pension funds and other
similar kind of sources. Venture capitalists take interest towards investment
in the early stage of the companies as well as more developing companies
having high growth and profit potential. Thus, these venture capitalists
provide finance for not only early stage funding but also for growth needs of
the companies. The venture capital firms prefer to invest in those companies
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 Mobilising that have already received enough equity investment from the founders and
Resources and
Start-Up having strong value proposition. Venture capitalist firms also look for
competitiveness of the company before investing in the firm.
The main advantage of this source of fund is that it is easy to raise finance
from venture capitalists firms as compared to government financial
institution. One more advantage is that it does not increase any external
liability as venture capital firms get some stake in the ownership of the
company. So it is a kind of equity financing rather than borrowings.

Regarding disadvantage of financing through venture capitalists firm is the

level of difficulty in convincing to venture capital firms as they consider
various parameters. For example, competitive position of the company,
expected growth and also the founder’s investment in the company. It also
requires a good negotiation regarding pricing of the ownership stake or to
decide how much ownership stake can be given towards getting which
amount of finance.

15) Crowd Funding

In Crowd funding, funds are collected from the general public with the help
of internet and through social media or other online platforms.

The main advantage of this source of fund is that it may be very much
helpful in creating a pool of fund through small amounts and can be used in
an effective manner. The disadvantage of this source of fund is that it
becomes difficult to convince the crowd particularly on the internet/social
media and create difficulty in getting funds.

16) Deferred Income

Sometimes deferred income is also considered as a source of finance
particularly as a short term source of finance for purchasing goods and
materials. Deferred income is the income which is generally received in
advance by the firm for the purpose of supplying of some goods and material
in near future. The income received in this manner increases the firm’s
liquidity and becomes as a short term financing source.

The major advantage of deferred income is that it increases the liquidity of

the firm. However, the limitation of this source of fund is that financing
through this source requires good credit worthiness of the parties engaged in
the transaction.

Check your progress B

1) What do you mean by retained earnings?
2) What is Letter of Credit?

3) What do you mean by crowd funding?

4) State whether the following statements are True or False:

i) Venture capitalists are non professional firms.

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 ii) Commercial banks are a good source for getting finance for all kind Mobilizing Financial
Resources
of duration (short, medium and long term duration)

iii) IPO stands for Initial Public Offerings

iv) The person holding shares is known as debenture holder
v) People holding preference shares are referred as preference
shareholders

5) Fill in the blanks:

i) ………………. can happen through two methods namely, recourse

and non-recourse method.
ii) Commercial papers are ……………………. promissory notes.

iii) ……………………….. generally comprise a group of professional

investors.

iv) In…………………….., funds are collected from the general public

with the help of internet and through social media or other online
platforms.

v) ………………………… generally provide fund in exchange for an

ownership stake in the start-up.

11.5 FACTORS DETERMINING THE

SELECTION / CHOICE OF SOURCE OF
FUNDS
As we know that every business requires finance towards meeting its various
financial needs. On the basis of duration, the financing sources may be
categorized as short term sources, medium term financing sources and long
term financing sources. Similarly, there are various types of institutions and
organizations offering finance for different durations and for various purposes
as well. It is also important to note here that raising finance also involves some
cost which varies as per the duration for which the finance is raised and also
the type of organization/ institution through which the financing is to be done.
Hence, the source of finance should be selected very carefully. The following
are some of the important factors which play an important role in the choice of
a suitable source of finance:

i) The most important factors which affects the choice of source of finance is
the cost factor and a good finance manager or entrepreneur should always
try to raise funds from such sources where the cost of capital is low.

ii) The other factor affecting selection of financing source is the financial
stability of the company along-with the image of the company.

iii) The time period for which the finance is required will also affect /
determine which source of finance should be selected. For example, if the
business organization wants finance for the purpose of buying fixed assets
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 Mobilising then the company should go and choose long term financing sources of
Resources and
Start-Up funds.
iv) The form and ownership structure of the business organization is also
an important factor which determines the choice of sources of funds. For
example it is the company structure which can use issue of shares and
debentures as a source of fund.
v) Risk factor is also important in determining the choice of source of fund
as there are some sources of funds which include more risk in raising
funds for the business.

vi) Simplicity and ease of raising finance is another important determinant in

deciding source of funds. Entrepreneurs / finance managers will look for
ease of raising finance which means looking for the complexity level
involved in financing along-with the legal formalities need to be
performed in raising finance. For example, raising finance through IPO
and by issuing shares and debentures may involve more legal formalities
and complexities as compared to other sources of finance.

11.6 PRIME MINISTER’S

EMPLOYMENT GENERATION
PROGRAMME (PMEGP)
The scheme of Prime Minister’s Employment Generation Programme
(PMEGP) was introduced by Government of India in 2008 which is a credit-
linked subsidy programme. The Ministry of MSME, Government of India
administers the said Prime Minister’s Employment Generation Programme
(PMEGP) and the implementation body for this scheme at national level is
Khadi and Village Industries Commission (KVIC).
It is also important to note here that this PMEGP scheme was emerged as an
outcome of merging two different schemes named ‘Prime Minister’s Rojgar
Yojna’ and Rural Employment Generation Programme scheme.

The main objective of this PMEGP scheme is to create more self employment
opportunities both in rural and urban areas for the unemployed youths who
want to setup their own venture / micro enterprise either in manufacturing
sector or service sector. The target beneficiaries of this scheme are mainly
unemployed youths and artisans. The scheme also aims to provide continuous
and sustainable employment opportunities to artisans in the rural and urban
areas as well.
The Prime Minister’s Employment Generation Programme is implemented
through Khadi and Village Industries Commission (KVIC) which has been
appointed as the nodal agency at national level. However, at state level, the
said scheme is implemented through the network of KVIC directorates,
district industry centers (DICs, State Khadi and village industries boards
(KVIBs) and the banks. Regarding the financial assistance provided under
this PMEGP scheme, there is a provision regarding the cost of the project and
in case of manufacturing sector enterprise, the maximum cost of the project
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limit that is provided for consideration is Rs. 25 Lakhs and for service sector Mobilizing Financial
Resources
enterprise the maximum cost of the project should not exceed Rs. 10 Lakhs.
Eligibility: The following are some of the criteria which are considered
under the PMEGP scheme for providing financial assistance:
x Individuals with age of 18 years or more.
x Production based co-operative societies.
x Self-help groups and charitable trust.
x Passing standard VIII is required for a project above Rs 5 lakh in the
service sector and above Rs 10 lakh in the manufacturing sector.
x Institutions registered under Societies Registration Act- 1860.
Regarding subsidy under this scheme, the subsidy amount for general
category is 25% of the project cost in rural areas and 15% of the project for
the urban areas. For special category, the subsidy is 35% of the project cost in
rural areas and 25% in urban areas.No collateral security or any third party
guarantee is insisted under this scheme.

11.7 MUDRA YOJNA

MUDRA, stands for Micro Units Development & Refinance Agency Ltd.,
which is a financial institution set up by Government of India for the purpose
of ensuring development and refinancing of micro units enterprises in India.
The major objective of MUDRA yojna is to ensure financial assistance to all
kind of micro enterprises through various financial institutions like Banks,
NBFCs and MFIs. It is also important to note here that MUDRA is a
refinance agency and not a direct lending institution and hence, MUDRA
provides refinance support to its intermediaries viz. Banks, Micro Finance
Institutions and NBFCs. There are three categories which are made for the
purpose of providing financial support which are as follow:
Shishu: Covering loans upto Rs. 50,000/-
Kishor: Covering loans above Rs. 50,000/- and upto Rs. 5 lakh
Tarun: Covering loans above Rs. 5 lakh to Rs. 10 lakh
MUDRA’s delivery channel is conceived to be through the route of refinance
primarily to Banks/NBFCs/MFIs.At the same time, there is a need to develop
and expand the delivery channel at the ground level. In this context, there is
already in existence, a large number of ‘Last Mile Financiers’ in the form of
companies, trusts, societies, associations and other networks which are
providing informal finance to small businesses.
For getting financial support under this MUDRA Yojna, Any Indian Citizen
having a good profitable business plan / business project in the non – farming
sector like manufacturing and services sector or any other processing activity
may approach Bank or NBFC or any MFI. However, it is important to note
here that there is a maximum limit under each category under the MUDRA
Yojna and the maximum credit limit is up to Rs. 10 lakh which means any
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 Mobilising business project exceeding the Rs. 10 lakh credit requirement would not get
Resources and
Start-Up benefit under this scheme.

11.9 LET US SUM UP

Mobilizing financial resources is very important task for any business
organization as we all know that a business organization cannot run without
financial resources. The business organizations not only requires finance /
funds for starting their business organization but also need adequate funds /
finance for their growth and development activities of the business. Further, it
is also to note here that funds which are required to purchase fixed assets like
land, buildings and machinery need long term financial sources while working
capital requirement of the business can be done with the help of short term
financing sources.

Sources of funds / finance can be classified on several bases. For example, on

the basis of duration, the sources of funds may be classified as short term,
medium term and long term sources of funds. On the basis of ownership, the
sources of funds can be classified as owner’s fund and borrowings. On the
basis of generation of funds, the classification can be done as internal sources
of finance and external sources of finance.

Each source of funds has its own advantages and disadvantages or limitations
and hence, the decision regarding selection of a source of finance should be
done very carefully as each source of fund has its own cost of raising fund.
Here, one needs to know the various factors like risk, fund required, cost of
raising fund, ownership structure of the business organization, and time
period for which finance is required which determine or affect the choice of
appropriate source of fund.

At the end, it can be said that decision of selecting / choosing a source of

finance is very important because it affects entire business operations and
also the earnings and profits of the business organization. A good source of
finance will always be helpful in not only ensuring smooth management of
the liquidity of the firm but also reduces the cost of capital which ultimately
contribute to more profit and growth of the business organization.

Check Your Progress C

1) What do you mean by PMEGP?

2) List out five factors determining the choice of sources of funds.

3) What is Mudra Yojna?

11.9 KEYWORDS
Share: When the capital of a company is divided into small units, that small
unit is termed as share and the persons holding shares are referred to
shareholders.

252

Debentures: Debentures are the debt instruments which are issued at a fixed Mobilizing Financial
Resources
rate of interest.

Source of finance: A source of finance can be any organization/agency/

financial institution/individual that can provide finance to the business
organization.

Factoring: Factoring refers to a kind of financial service under which the

‘factor’ renders various kinds of services like discounting of bills (with or
without recourse) and also collection of client’s debts.

Crowd funding: In crowd funding, funds are collected from the public
(crowd) with the help of internet and through social media or other online
platforms.

Angel investor: An angel investor is referred to an individual who is ready to

provide funding for such kind of start-ups, which are not able to get funding
from any other institutions. These angel investors generally provide fund in
exchange for an ownership stake in the start-up.

Venture capitalists: Venture capital firms generally comprise a group of

professional investors generally in the form of professional firms. These
firms are interested in investment at the early stage of the companies and
particularly more developing companies having high growth and profit
potential.
Public deposits: When the business organizations directly raise deposits from
the general public is known as public deposits.
Letter of credit: In the letter of credit mechanism, the buyer’s banker on
request of buyer and in the favor of seller gives an undertaking to the seller
that the buyer’s banker will pay up to a certain amount to the seller in case if
the buyer is not able to pay the transaction amount.
Overdraft: Overdraft is a kind of facility where a bank offers / allows its
customers / borrowers to withdraw more funds in excess to the balance
available in the customers/borrowers account for a specific period of time.
Retained earnings: Retained earnings are that portion of profit which is not
distributed among shareholders and is kept reserved for the purpose of
reinvestment in the business.
IPO (Initial Public Offerings):When a company previously unlisted in the
stock market offers its shares for sale to the general public is known as IPO
(Initial Public Offerings).
Commercial papers: Commercial papers are unsecured promissory notes to
raise funds for a short period ranging from 90 days to 364 days which are
issued by primary dealers (PDs) and other all India financial institution.

11.10 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i. False ii.True iii.True iv. False v. True
253

 Mobilising 5. i. Finance ii.long term iii. Short term finance iv. profits v. 5 years
Resources and
Start-Up
B) 4. i. False ii.True iii. True iv. False v. True

5. i.Factoring ii.unsecured iii.Venture capitalists iv.Crowd funding v.

angel investors

11.11 TERMINAL QUESTIONS

1) Explain the various types of sources of finance based on the ownership.

2) What do you understand by short term and medium term sources of

funds?

3) Do you agree that a business organization not only requires access to

funds but also the adequacy of fund? Comment and justify you answer.

4) Discuss the need and significance of finance for a business organization.

5) What is meant by debentures? How debentures differ from shares?

6) Differentiate between angel investors and venture capitalist.

7) Differentiate between the equity shares and preference shares.

8) Discuss any three advantages of raising finance from a bank.

9) What do you mean by crowd funding?
10) What type of source of fund would you like to choose to arrange the
working capital to buy raw material for your production of goods?
Justify your answer with appropriate arguments.

11) Discuss in detail the various sources of funds categorized based on the
duration.
12) Explain the various types of funding sources which are classified based
on the ownership.

13) Discuss in detail the various modes / methods through which bank
provides loan and advances to its customers/ or companies.

14) What factors do you think that a financial institution / funding

organization would see while granting a loan for a new business relating
to opening a new small size restaurant? Justify your answer with
appropriate arguments.

15) What do you understand by IPO (Initial Public Offerings). Discuss its
advantages and disadvantages/limitations as a source of fund.

16) Discuss in detail the ‘Public Deposits’ as a source of finance. Also

mention the various advantages and limitations of getting funds under
this public deposits method.

17) Explain the various sources of funds available under the category of
‘Borrowed Funds’.
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18) Differentiate between the ‘Letter of Credit’ and ‘Discounting of bill’. Mobilizing Financial
Resources
19) Do you agree that ‘Retained Earnings’ is a good source of financing for a
business? Justify your answer with at least three reasons in support of
your answer.

20) Discuss in details the features of ‘Commercial Paper’ along-with the

advantages and disadvantages/ limitations of this source of funds.

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

FURTHER READINGS
x Chandra Prasanna (2017), FINANCE SENSE (5th Edition), McGraw
Hill (Chapter 15: Sources of Finance)
x Stephen A. Ross, Randolph W. Westerfield, Jeffrey Jaffe, Bradford D.
Jordan (2017), Corporate Finance (11th Edition), McGraw Hill (Chapter
20 - Raising Capital & Chapter 26 - Short-Term Finance and
Planning)
x Prasanna Chandra (2019), Financial Management: Theory & Practice
(10th Edition) (Chapter 17: Sources of Long Term Finance & Chapter
18: Raising Long Term Finance)
x Khan M Y (2019 ), Financial Services, (10th Edition) McGraw
Hill,(Chapter 2: Lease Financing &Chapter7: Venture Capital
Financing)
x Sharan Vyuptakesh (2012), Fundamentals of Financial Management,
Pearson Education (Chapter12: Sources of Short – Term Finance)

x https://msme.gov.in/11-prime-ministers-employment-generation-
programme-pmegp

x https://www.mudra.org.in/

255

 Mobilising
Resources and UNIT 12 MOBILISING NON-FINANCIAL
Start-Up
RESOURCES

Structure
12.0 Objectives
12.1 Introduction
12.2 Resources For Setting Up of An Enterprise
12.3 Importance of Non-Financial Resources
12.4 Non-Financial Resources
12. 4.1 Human Resources
12.4.2 Mentoring Resource
12.4.3 Other Non-Financial Resources
12.5 Mobilising Non-Financial Resources
12.6 Let Us Sum Up
12.7 Key Words
12.8 Answers to Check Your Progress
12.9 Terminal Questions

12.0 OBJECTIVES
After completion of this unit, you will be able to:
x describe various types of resources that are required for setting up an
enterprise;
x enlist non-financial resources that are important for setting up an
enterprise;
x describe the importance of non-financial resources for business
enterprise;
x identify the sources to acquire non-financial resources; and
x explain the meaning of mobilising the non-financial resources.

12.1 INTRODUCTION
In order to set up your own enterprise, you need to explore and analyse,
select and procure the resources that are required to set up an enterprise and
run it successfully. Entrepreneurs require various resources to run an
enterprise. If we categorise all the resources required it may be categorized
into two broad categories: financial and non-financial resources. It is not
only the money, which is essential for any business. There are pools of
resources other than money that are crucial for businesses. You have already
learnt about the financial resources required, their type and how to acquire
and use them. In this unit, you will learn about all the non-financial resources
which are required to set up an enterprise and run it successfully.
256
 Mobilising Non-
12.2 RESOURCES FOR
R SETTING UP AN Financial Resources
ENTERPRISE
An entrepreneur needs support (bessides money) from various sources such as
family, friends, consultants, expperienced employees, takers of his/her
business offering i.e., customers etc. While setting up an enterprise, an
entrepreneur has to take into accoount all the stakeholders of her business.
Right from deciding about what to offer, whom to offer and how to offer, at
every step, entrepreneur needs suppport from various sources. Besides, he/she
needs to identifying location and acccommodation, utilities that are required in
running the business. He/she requirres advice from specialist and consultants,
various services that are required to carry out a business such as bankers,
transportation, warehousing, insuraance etc. This list is big. For various kinds
of businesses the requirement may vary. An entrepreneur has to explore and
analyse these resources before settinng up an enterprise.
The resources that are needed to sstart a business can be broadly classified
into two broad categories; Finanncial and Non-Financial resources. Non-
Financial resources may further bee divided into seven categories. They are
as follows:
x Human resources i.e., the emplloyees of the business organisation
x Knowledge resources,
x Mentoring resources,
x Material resources,
x Moral resource,
x Cultural knowledge resource, aand
x Relational resource.

ZĞƐŽƵƌĐĞƐĨŽƌƌƐĞƚƚŝŶŐƵƉĂŶĞŶƚĞƌƉƌŝƐĞ

EŽŶͲ&ŝŶĂŶĐŝĂůƌĞƐŽƵƌĐĞƐ
1.Human resources
2. Mentoring resources
3. Educational resources
&ŝŶĂŶĐŝĂůƌĞƐŽƵƌĐĞƐ 4. Emotional resources
5. Physical resources
6. Moral resources
7. Cultural knowledge
8. Relational resource

Figure 12.1Resources req

quired for setting up an enterprise

257
 Mobilising
Resources and 12.3 IMPORTANCE OF NON-FINANCIAL
Start-Up
RESOURCES
When the thought of creating or setting up a business enterprise comes into
mind, the first concern that strikes our mind is the requirement and
procurement of financial resources for the business. We generally do not pay
much heed to the requirement and importance of non-financial resources. It is
only when you actually initiate the process of setting up an enterprise; you
understand the importance of non-financial resources. Most of the businesses
that fail during their early start up years may be due to lack of non-financial
resources also. According to the researches and surveys the failures are not
mainly because of the lack of financial resources but majorly because of
inadequacy of the founders’ ability to mobilise adequate and appropriate non-
financial resources and their own managerial and leadership skills. For the
preparedness of the business organisations to face the challenges that
environment poses, support from these non-financial resources is critical.
Following are the importance of non-financial resources:
1) Offer valuable advice: Non-financial resources in the form of vendors,
suppliers, or mentors helps in expanding the knowledge of the
entrepreneur by sharing their viewpoints and prior experience. For
example, if an entrepreneur is thinking of exporting some products,
he/she may get some valuable advice from people who have prior
experience in the field.
2) Offer different perspective: The non-financial resources helps
entrepreneurs look at problems and situations from perspectives that
they would not have thought of on their own. For example, a new
business owner may not look at the opportunities or threats present in
the environment but experts, mentors and other people dealing in the
same business line may help him/her scan the environment.
3) Helps in developing and improving skills: When entrepreneurs takes
guidance from an expert or mentor, participate in industry events and
meet new people who have expertise and prior experience, it helps
them to develop their business skills. For example, if suppliers are
complaining that they are not able to understand the directions given by
the entrepreneur, business mentor or an expert may help him/her
improve their communication skills.
4) Helps in expanding network: Mentors, experts or participation in
industry events helps an entrepreneur in making contacts who can help
him/her to make the business more successful. In business, it is very
popularly said that network is equal to networth. These mentors,
professional experts and co-founders help the entrepreneur (budding
entrepreneurs) in getting connected to the influential and important
alliances in the industry.
5) Helps in problem-solving: Mentors and co-founders can be a boon for
the new ventures. Their expertise and experience in the area is very
258
 important for the business. They may facilitate in dealing with the Mobilising Non-
Financial Resources
troubles.

6) Helps budding entrepreneurs in innovation: Early stage enterprises

may have high potential ideas. If they are not able to mobilise the
required support to develop and refine their innovation, they may end up
in failure. In the economies like ours, where low-income market provides
a huge potential for business, there is no much invention and
intervention. Investors are also apprehensive and sceptical to take risk by
investing in the business enterprises targeting these markets. Therefore,
non-financial resources become essential for the budding entrepreneurs.
7) Helps in understanding trends of the industry: The non-financial
resources help the entrepreneur in analysing and understanding the
market and make them aware of the latest trends or technology in the
industry.

8) Helps in effective decision making: Mentors, cofounders and

professional experts extend their guidance in effective decision making
and formulating strategies for the business. Their experience and
expertise in the diverse field are very useful in analysing the market and
making policies for the business. These non–financial resources enable
the budding entrepreneurs for long-term preparedness for investment,
profit and perpetual social impact.
It is important to keep in mind that nothing comes for free. So
identifying and using these resources is very tricky. Therefore, entering
into contracts while accessing these non-financial resources makes much
more sense.

12.4 NON-FINANCIAL RESOURCES

It may sound very easy to get access to the non-financial resources but these
resources may be very scarce. Sometimes, its accessibility may be very costly
too. Many new entrepreneurs may not find it affordable. In some of the
Indian states like Gujarat, Maharashtra, Punjab, Tamil Nadu etc., there are
more developed entrepreneurial activities and it may be easier to get access to
these non-financial resources but in small cities and less developed states, it
is still a challenge to get adequate non-financial resources. Let us discuss the
non-financial resources and try to explore the ways and means to attain them.

12.4.1 Human Resources

Human resources are the only active resources in the business organization.
All the other resources such as, machine, money, raw material etc., these are
all passive resources. These resources cannot work on their own. Human
resources (employees) of the organization put them to use. Their effective
and optimum utilization is in the hand of human resources therefore it is very
important to hire talented people in the organization. One should try to have
talented employees with good track record, even if the organization needs to

259
 Mobilising pay little higher prices. Besides employees, an organization should also focus
Resources and
Start-Up on the following for running their enterprise successfully.
x Vendors
x Suppliers
x Bankers
x Customers
x Mentors
x Co-founder
x Expert guidance

Let us now discuss them one by one.

Vendors: Vendors are crucial for the success of any business organization.
They are the individuals or business organization that sells your market
offerings to the customers with an objective to earn money from the
manufacturer. For example, vendors are in close and direct contact with the
customers so they are aware of the latest trends in the industry and they can
share the information with the entrepreneurs so that the business can offer
those products and services in the market and enhance their brand value.

Suppliers: Suppliers, on the other hand are the individuals or business

organisations that provides the business organisations the goods and services
which are required to run their businesses. For example,when entrepreneurs
work closely with their suppliers and maintain cordial relations with them,
both of them will have seamless co-ordination. The business will know the
right time to order from their supplier so they receive the order on time and as
the supplier understands the nature of the product offered by the business,
they may provide unique and exclusive products that may help the
entrepreneur to create a competitive advantage over other businesses in the
market.

Bankers: Commercial banks play a very important role in setting up,

survival and growth of a business enterprise. They are crucial in providing
working capital assistance to the business organization. Working capital is
the oxygen for the business. Apart from providing financial services banks
also providenon-financial services in the form of information, education,
networking, access to markets and recognition. They complement the
financial offerings of a bank. Banks also provide credit certification to help
raising funds.

As you know that all business transactions are mostly credit dependent. The
market offerings (products or services) are sold to the agents and wholesalers
by the entrepreneurs on credit. There may be a possible delay in realizing the
sales proceed (cash) as credit period is provided to the marketing
intermediaries. The entrepreneurs need to make payments to certain service
providers, for their utilities, employees etc. For this purpose working capital
is required. This working capital is provided by banks. If banks do not lend
working capital assistance to businesses their business system may collapse.
260
So not only banks by providing financial assistance play an important role in Mobilising Non-
Financial Resources
setting up of the business but also helps in their expansion.

When it comes to non-financial services banks play an important role as well.

Bankers have their networks with investors as well as business idea
generators; their relationship with these people is valuable. Banks may
connect the entrepreneurs to these people who may help the small businesses
to grow. Sometimes, they act as advisor or guide to the entrepreneurs as they
have knowledge and experience of the financial markets. They may also
guide the entrepreneurs to help in deciding about the profitable investments
etc. They enable to entrepreneurs to make more informed investment
decisions and choices. They also enable them to avoid mismanagement of
funds. Thus they provide important counseling services to the entrepreneurs.
Customers: Customers provide authentic feedback and a complete sense and
feel of the market. The good feelings as favourable feedback of the customers
may be very helpful in creating satisfied customers. Satisfied customers are
crucial for the success of the enterprise. As a business person you need to
create good reputation in the market. Having good reputation is the key to
attract valuable investors, partners and employees. Good reputation comes
from the positive feedback of the customers and in order to earn reputation
you must make sincere efforts to develop satisfied and delighted customers.

Co-founders: A co-founder is a person who accompanies the founder in

establishing the enterprise.Many a time a budding entrepreneur look for co-
founders for their new business venture as he/she may not have adequate
resources or skills for smooth operation of the business enterprise. These co-
founders provide both financial and non-financial resources to the business
enterprise. They are the investors in business who take participation in
business decisions. They are of immense help in building a strong network.
For example, the idea of Facebook was defined by Mark Zuckerberg and
initially the use of Facebook was limited to students of Harvard University
only but when he aimed to expand Facebook worldwide, other fellow
students helped him and taken responsibilities as co-founders.

Expert Guidance: Besides mentors, there are other experts also whose help,
guidance and advice may be vital for the business. An expert is an individual
with relevant industry experience and expertise. They are professional
experts such as corporate lawyers, chartered accountants, investment bankers,
insurance advisors etc. They also play a very important role in a business
enterprise. For example, an entrepreneur may have a brilliant business idea
and skills as well but he lacks the required knowledge of international
business environment to upscale his business globally so he/she can take the
help of an expert for their business expansion.

12.4.2 Mentoring Resources

Mentors are as important as the financial resources of the businesses.
Mentors are important not only while setting up an enterprise but also at the
different stages of growth of their business ventures. The entrepreneur

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 Mobilising requires mentoring support in some form or the other while initiating or
Resources and
Start-Up running the business.
Startup mentors are expert drawn from the industry or the professionals. They
are experts in technical know-how, in marketing, in operations, human
resource management, leadership, investment decision etc. They have vast
experience and knowledge about the business. Sometimes, successful
entrepreneurs also provide mentoring support to the budding entrepreneurs.
Venture capitalists, Angel investors and other investors of the business also
render mentoring support to the entrepreneurs.

In-fact, mentors play significant role for setting up and growth of business
ventures. They are very important asset of the business enterprise. Mentors
help in validating the business offerings in the market. Besides, they can get
the entrepreneurs connected to the partners. The experience that you can get
by years of research and hard work will be instantly given by the mentors.

When you are planning to expand your business, senior experts of the
industry can be of great help. Mentors also help in raising fund for the
business. They introduce you to the investors and sometimes, they
themselves make investment in your business. Therefore, you need to select
suitable mentor for your business.

Characteristics of a good mentor: Given below are the characteristics of a

good mentor.
x He/She should be accessible most of the times.
x He/She should have vast experience of the industry.
x He/She should be passionate.
x He/She should be an excellent communicator.
x He/She should be able to foresee challenges and problems.
x He/She should be able to suggest you a right course of action.
x He/She should be a good critic as well.
x He/She should be trust worthy.
x He/She should be knowledgeable.
x He/She should be well connected.

Advantages of having a good mentor: A good mentor helps you in

choosing the right goal and enables you to develop a workable vision. They
help the emerging entrepreneur with their own vast and long experience of
the business. They help in making a good team of people to work for your
business enterprise. They hold hand in rough times and makes the way easier
to sail through the tough time. Mentors who are well connected can get the
emerging entrepreneurs connected to the people who can provide them start-
up funds, business. It is important to remember here that everything in
business comes with a price. Therefore, choosing a right mentor for your
business enterprise is critical.

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The disadvantage may be the poor or inadequate or wrong mentoring may Mobilising Non-
Financial Resources
lead to the failure of the business.

Check Your Progress A

1) Distinguish between financial and non-financial resources.

2) How can a bank provide non –financial resources?

3) What do you mean by mentoring resources?

1) Fill in the blanks:

i) ……………….. are the only active resources in the business

organization.

ii) ……………… are the individuals or business organization that sells

your market offerings to the customers.

iii) Satisfied customers are …………… for the business.

iv) …………….. help in validating the business offerings in the market.
v) …………………….. provides the business organisations the goods
and services which are required to run their businesses.

2) State whether the following statements are True or False:

i) Human resources of the organization put all the other resources of
the organisation to use.

ii) Suppliers play a crucial role in providing working capital assistance

to the business organization.

iii) If banks do not lend working capital assistance to businesses their

business system may collapse.

iv) A good mentor should not be a critic.

v) An entrepreneur only requires financial resources to establish and
run an enterprise.

12.4.3 Other Non-Financial Resources

Some other non-financial resources are discussed below:

Access to Industry Events: Access to industry events provides opportunities

to the entrepreneur to understand the trends or scenario of industrial
marketing activities. Both emerging and growing entrepreneurs need to
participate in the industry events. The industry events can be in the form of
competition, business award ceremony or networking events. Events are full
of opportunities. It increases awareness of the entrepreneur, helps him/her to
make contacts, generate leads, promote their business and also provide
recruiting opportunities. For example, Government of India organizes Start-
up India Yatra under which series of events are held to search for
entrepreneurial talents in Tier 1 and 2 cities in India.
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 Mobilising Knowledge/Information/Intellectual Resources: Knowing industry, to
Resources and
Start-Up which the business belongs, is very important. While setting up an enterprise,
it is very important for the entrepreneurs to know the industry and their
competitors in the market. For this, an entrepreneur needs to have
information. This information can be attained through professional trade
associations, local chamber of commerce, small business administration etc.

Besides, If the business has innovative ideas or market offering (especially in

case of developing a product prototype), it is very important to protect the
innovation. Intellectual property needs to be protected by patents, copyrights
etc. The term "Intellectual Property Rights" has not been defined under any
Indian statute. As per the World Intellectual Property Organization (WIPO),
“Intellectual property refers to creations of the mind, such as inventions;
literary and artistic works; designs; and symbols, names and images used in
commerce”. An entrepreneur needs guidance in protecting her IPR too. It
gives a competitive edge to the company.
Physical/Material Resources: There are physical or material resources such
as office premises, equipment, utilities (water, electricity, telephone etc),
location, factory space, furniture etc. which are required to be procured while
starting an enterprise. They are essential for functioning of the business and
its survival. Proper caution is to be taken while acquiring these resources as
they involve high cost. One has to make realistic assessment of these
resources. Most of the start-ups initially start their businesses from home,
garage etc. the entrepreneur has to consider the cost, quality, suitability etc.
for selecting these resources.
Emotional Resource: Setting up a business enterprise is not a piece of cake.
It may be also very stressful. Understanding emotion may be helpful in
interacting, accommodating or establishing harmonial relationships among
the members of the organisation. Emotional support may be more important
during early start up phases when there can be turbulence in business.
Emotional support help the entrepreneur to stay calm, positive and patient.
The team is important for motivation, inspiration and guidance too. This team
may be from family, friends, relatives, mentors etc. Understanding emotions
help entrepreneurs to communicate better and promote team effort. It also
helps to develop good customer relationships. For example, entrepreneurs
who lacks emotional intelligence struggles to have good professional
relationships.

12.5 MOBILISING NON-FINANCIAL

RESOURCES
As we have discussed that non-financial resources play very significant role
in the starting as well as sustaining the growth of the business organizations.
These resources are critical. Like all other resources, non-financial resources
also involve cost. As a businessperson, if you want to get support from these
non-financial resources for a long time, you cannot get it for free. Mentors,
expert advice, bankers and all other non-financial resources demand their
share of fee (or share in profit/ ownership of business etc). This cost can also
264
be very high, therefore, exploring and mobilizing these resources is a skill Mobilising Non-
Financial Resources
that may be vital for the business. You may have to enter into a contractual
agreement with these persons or paarties. Without fee, you may be able to get
support for a short period of time, but for long term relationship (supply of
these resources) you need to make payment as fee or as granting them equity
stake in your business organization..
Mobilisation means exploring the rresources, procuring them at an affordable
costs and putting them into use in aan efficient and effective manner. In a nut
shell resource mobilisation means selecting and procuring three A’s (3 A’s)
i.e., Adequate resources at appropriiate time and at affordable cost. (See figure
12.2)

Adequate
Resources

Appropriate Time

Affordable Cost

Figure 12.2: 3 A’ss of Resource Mobilisation

Exploring a mentor: Finding a m mentor is a very important and tricky step.

Sometimes a friend or family may be playing a role of mentor. In this case,
you may not have to give much thhoughts (off course you should have trust
and confidence in them). In case yyou are looking for a mentor outside your
own circle of family, friends, relatiives and acquaintances, you have to put in
a conscious effort to find a good mentor. Industry events are an important
source to look for mentors. There aare many speakers and experts in the event,
attending the same. They can be possible mentors. You need to approach
them and introduce your start-up/ idea with them. If it clicks to them they
may agree to hold your hand as menntor.
Besides, Business-Incubators also ccan act as good mentors. You may look for
the networks of incubators availabble in your proximity. You may also look
for Venture capitalists and Angel innvestors to be your mentor.
An entrepreneur need to approacch those mentors who can help him/her
making a good business model andd introduce and get them connected to the
right team to work with. It is needleess to mention here, the mentors should be
selected very carefully.

265
 Mobilising How to choose a good mentor
Resources and
Start-Up
You should follow the following steps while choosing a good mentor for
your start-up or business venture:

1) Analyse and understand what for are you looking a mentor? Which is the
area of expertise or execution that you want to do under supervision and
guidance of an experienced mentor. Do you need help for networking,
seed money, working capital or technical know-how etc.? Or do you
need help in exploring, analysing and choosing the market for your
offerings, validating and developing your offerings. Different individuals
have different skill set therefore; you need to select a mentor according
to the skill set that can help you in overcoming your weaknesses.

2) Create a checklist of skills and attributes that you are seeking in your
mentor. With the passage of time, the need for skills and expertise may
be keep on changing. Therefore, these changes must be considered while
making the checklist. Accordingly, you may need more than one mentor.
Make a comprehensive list to select the best suitable person for your
business.
3) Explore all the sources from where you can get and approach the mentor.
Try to match their abilities, skills and experience with your checklist. If
you are attending an event to get your mentor, listen to them carefully so
that you can make more informed decision. Active listening will be very
helpful in taking appropriate decision. You may find your mentor(s)
from Chamber of Commerce meetings, Local business meets, Industry
Associations, Industry conferences and social media.
4) Find out the cost they will carry with them and also access that whether
it suits to your budget. There are mentors who give mentoring support
for free for a short period of time, you may explore them (if required)
and try to get their time for interaction. Reading autobiographies/
biographies of successful entrepreneurs can also be helpful in learning
their respective style and approach of work.

5) The last step is to approach them and enter into a contract with them (if
need be).

There are many start-up networking groups in every locality. The

entrepreneur may try to contact them. They may introduce him/her to the
industry leaders. Identify people who can set up their meeting with them.
After meeting the entrepreneur can decide whether they are the ones
whom he/she is looking for or not and then approach them accordingly.

Successful entrepreneurs also sometimes offer their services as mentors

if they find the business idea promising and interesting. It depends on the
entrepreneurs as mentee how carefully and truthfully they follow the
advice of their mentors.

266
Check Your Progress B Mobilising Non-
Financial Resources
1) What do you mean by emotional resources?

2) List out the steps of choosing a good mentor?

3) Write three importances of non-financial resources.

4) Fill in the blanks:

i) ……………… are the investors in business who take participation

in business decisions.

ii) ……………………. needs to be protected by patents, copyrights

etc.

iii) ………………………. means exploring the resources, procuring

them at an affordable costs and putting them into use in an efficient
and effective manner.

iv) ………………….. are an important source to look for mentors.

v) In business, it is very popularly said that network is
………………….. to net worth.

5) State whether the following statements are True or False:

i) Non-financial resources also involve cost.

ii) When entrepreneurs are not able to mobilise the required support to
develop and refine their innovation, they may end up in failure.

iii) Non –financial resources enable the budding entrepreneurs only for
short-term preparedness for investment, profit and perpetual social
impact.

iv) Emotional support help the entrepreneur to stay calm, positive and
patient.

v) Industry information can be attained through professional Trade

Associations, local Chamber of Commerce, small business
administration etc.

12.5 LET US SUM UP

Entrepreneurs require various resources to run an enterprise. If we categorise
all the resources required it may be categorized into two broad categories:
financial and non-financial resources. It is not only the money, which is
essential for any business. There are pools of resources other than money that
are crucial for businesses.
Non-Financial resources may further be divided into seven categories. They
are as follows: Human resources i.e., the employees of the business
organization, Knowledge resources, Mentoring resources, Material

267
 Mobilising resources, Moral resource, Cultural knowledge resource, and Relational
Resources and
Start-Up resource.

For the preparedness of the business organisations to face the challenges that
environment poses, support from these non-financial resources is critical.
Following are the importance of non-financial resources:Offer valuable
advice, Offer different perspective, Helps in developing and improving
skills, Helps in expanding network, Helps in problem-solving, Helps
budding entrepreneurs in innovation, Helps in understanding trends of the
industry, and Helps in effective decision making.

Human resources are the only active resources in the business organization.
All the other resources such as, machine, money, raw material etc., these are
all passive resources. Besides employees, an organization should also focus
on the following for running their enterprise successfully: Vendors, Suppliers
Bankers, Customers, Mentors, Co-founder, Expert guidance.

Mentors are experts in technical know-how, in marketing, in operations,

human resource management, leadership, investment decision etc. They have
vast experience and knowledge about the business. Sometimes, successful
entrepreneurs also provide mentoring support to the budding entrepreneurs.
Venture capitalists, Angel investors and other investors of the business also
render mentoring support to the entrepreneurs.
Some other non-financial resources are: Access to industry events which
provides opportunities to the entrepreneur to understand the trends or
scenario of industrial marketing activities, Knowledge resources which are
required while setting up an enterprise as it is very important for the
entrepreneurs to know the industry and their competitors in the market. There
are physical or material resources such as office premises, equipment,
utilities (water, electricity, telephone etc), location, factory space, furniture
etc. which are required to be procured while starting an enterprise. Emotional
resources as understanding emotions help entrepreneurs to communicate
better and promote team effort. It also helps to develop good customer
relationships.

Mobilisation means exploring the resources, procuring them at an affordable

costs and putting them into use in an efficient and effective manner. In a nut
shell resource mobilisation means selecting and procuring three A’s (3 A’s)
i.e., Adequate resources at appropriate time and at affordable cost.

As an entrepreneur you need to approach those mentors who can help you
making a good business model and introduce you and get you connected to
the right team to work with. It is needless to mention here, the mentors
should be selected very carefully.

12.7 KEY WORDS

Co- founders:They are the investors in business who take participation in
business decisions.

268
Human resources: They are only active resources in the business Mobilising Non-
Financial Resources
organization. Human resources (employees) of the organization put the
passive resources (machine, money, raw material etc.) to use.

Mentors: They are experts from the industry in technical know-how, in

marketing, in operations, human resource management, leadership
investment decision etc. who also have vast experience of the industry.

Resource Mobilisation: Exploring the resources, procuring them at an

affordable costs and putting them into use in an efficient and effective
manner.

Suppliers:They are the individuals or business organisations that provides

the business organisations the goods and services which are required to run
their businesses.

Vendors: They are the individuals or business organization that sells your
market offerings to the customers with an objective to earn money from the
manufacturer.

12.8 ANSWERS TO CHECK YOUR PROGRESS

A) 4. i. human resources ii. vendors iii. crucial iv. mentors v. suppliers
5.i. True ii. False iii. True iv. False v. False
B) 4..i. co-founders ii. Intellectual property iii. Mobilization iv.Industry
events v. equal
5.i. True ii. True iii. False iv. True v. True

12.9 TERMINAL QUESTIONS

1) What are non-financial resources? Discuss about the different types of
non-financial resources.
2) “Human resources are the only active resources in the business
organization”. Comment
3) “Mentors are indispensable for setting up and growth of business
ventures”. Discuss
4) What do you understand by the term mobilisation of non-financial
resources?
5) Who is a mentor? What are the characteristics of good mentor and
discuss how to choose a good mentor?
6) “To prepare the business organisations to face the challenges that
environment poses, support from the non-financial resources are
critical”. Elaborate

Note: These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University for
assessment. These are for your practice only.

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 Mobilising
Resources and FURTHER READINGS
Start-Up
x https://www.businessmanagementideas.com/startups/mobilising-
resources-for-startups-types-problems-and-solution-entrepreneurship-
business/18188

x https://ssir.org/articles/entry/early_stage_enterprises_need_more_than_m
oney#:~:text=Where%20investment%20is%20probable%2C%20the,indu
stry%20events%E2%80%94essential%20for%20entrepreneurs.

x https://edurev.in/studytube/Mobilising-Resources--Entrepreneurship--
Commerce-/059a8b65-671b-45b0-8de1-473002a2730c_p

x https://smallbusiness.chron.com/5-resources-need-succeed-start-
business-23.html

x https://medium.com/@KeithKrach/5-points-on-the-importance-of-
mentors-for-entrepreneurs-
a14736e7d7a9#:~:text=A%20good%20mentor%20can%20help,a%20bus
iness%20or%20marketing%20plan.&text=Additionally%2C%20a%20m
entor%20may%20help,your%20experience%20can%20currently%20aff
ord.

270