Right Types and Sources of Funding are the Biggest Challenges for Systemic Entrepreneurship

Entrepreneurship has developed in new avatars in the recent socio-economic scenario. Rapid changes in the economic scene and social developments in our country have led to several entrepreneurial initiatives in various sectors of society. Entrepreneurship involves setting up and running of the business to secure profits. It includes the strategies involved and the financial risks associated with the venture.

Local and Systemic Entrepreneurship

Based on the coverage or scope of service provided by the business, Entrepreneurship can be Local and Systemic.

Local entrepreneurship is local business limited to a localized area of service or catering to the needs of a local population.

Systemic Entrepreneurship is a broader term that pertains to the entrepreneurship related to the whole business system or the economy.

Systemic Entrepreneurship

Systemic Entrepreneurship is a methodological approach to promote and improve entrepreneurship conditions and the socio-economic structure of our nation as a whole. 

Systemic Entrepreneurship involves studying factors related to Mass Entrepreneurship and not just a localized one. These include work areas, overview, distribution of services, challenges faced, current and future needs of the organization and the entrepreneurs, along with the parameters on which business sustainability depends.

It is thus a comprehensive subject and follows a holistic approach. It has a broad impact on an industry, profession, or area as a whole.

Challenges faced by Systemic Entrepreneurship

All entrepreneurship face varied challenges in their developmental life cycle. Some of these challenges are:

• Expensive credit facilities
• Limited funds or working capital
• Lack of business information
• Improper planning and management
• Infrastructural limitations
• Insufficient knowledge about funding policies and procedures
• Social inequality, and many more

Here we are going to discuss the biggest challenge for Systemic Entrepreneurship, i.e., Right type and sources of funding.

Sources of Funding for Systemic Entrepreneurship

The availability of the right resources at the right time is a must for a successful venture. Every business needs capital to build up its resources and launch its product. The sources of funding for any business organization can be of 2 types:

i) Equity Financing- Money is invested in the business by external parties instead of part ownership in the business

ii) Debt Financing- The business builds up capital by taking loans and then paying back the amount along with interest.

Types of Financing in Entrepreneurship-

DEBT FINANCING

1. Commercial Banks 
2. Finance Companies 
3. State/Local Government programs
4. Trade credit 
5. Lender clubs

EQUITY FINANCING

1. Private investors
2. Venture Capitalists
3. Overseas investors
4. Financial intermediaries

• Personal Financing- This is the most common and general type of financing in business and start-ups. The owner invests his capital or investment from his savings or borrowings from friends and family.
• Government grants and loans- Assistance from the Government is also helpful in the form of low-interest rate start-up loans, grants, and subsidies as per the choice of business.
• Business loans- This is also the most common way of securing business finance. Several banks and NBFCs have tailor-made products for a business loan for entrepreneurs. The rates of interest are, however, comparatively high, and often, the payback amount is large.
• Business Angel investors- These are the business angels or experienced and influential business persons who are ready to invest their time and money in a newly started business, without taking a share in the new business. 
• Venture Capitalists - This is more of corporate financing where financial investors or Venture Capitalists invest in a start-up or new business in return for profits and shares.

Choice of Source of Funding for Entrepreneurship

Depending upon the type of business and the sources of finance available, choosing the right funding option is more or less a personal discretion. It should be carefully taken after assessing the business situation. The various sources of funding are not all applicable to a business.

• Financial Bootstrapping- In this scenario, the entrepreneur starts with his own money and relies less on outside investments. The business capital is arranged from joint utilization, subsidy finance, and minimized inventory. If you have sufficient backup in terms of money and entrepreneurial advice, this can be the safest method of funding.
• Bank loans- They are the most common type of business funding. The banks grant loans where the tenure, payback interest, and payment options are fixed and not flexible. The entrepreneur has to give some collateral in exchange for a loan. This is an ideal option for entrepreneurs who have fixed asset investments.
• Bank Overdrafts- Overdrafts can be a rescuer when the bank balance of the business entrepreneurs falls below a minimum level. In this stage, they can borrow money from the bank itself at a high-interest rate. This can be an option for a seasonal drop in the cash flows.
• Personal Financing and Angel Investors come handy in the initial stages of the start-up when the business is in the incubation stages. Angel investors play an important role here in the form of funding, entrepreneurial mentorship, and industry connect.
• Venture Capital assistance is the much-needed help as the business gains visibility and scalability and attempts to establish it.
• As the business progresses and expands its requirements, its working capital needs an increase. Instead of using equity capital at this stage, short term capital loans can be taken after careful assessment of your payback capacity.

Conclusion:

In addition to funding, a business enterprise also needs ample support from a vast range of entities, like the Government, banking and educational institutions and large businesses. Funds, skilled labor, market research, and industry network are all vital components of a business ecosystem and together, provided in the right proportions can propel an enterprise on the path towards success.

The business should be socially accessible, i.e. the need for participation and support for entrepreneurship should come from all sections of the society. The entrepreneurs should make sure that the product or the service that they are offering should be user-centric. It should be able to cater to the needs of the community as a whole rather than a section of people.