Every business needs finance for sure. It all depends on the requirements of funds for your business and the strength of the balance sheet. Generally a debt equity ratio of 2:1 is a good ratio. So if you have need of funds then make sure you don’t borrow more than the said ratio. Further, other issues are relating to the repayment capacity, own margin availability and the security to be offered. For judging the repayment capacity I suggest you make detailed projections for the term of the loan and see that there are no negative cash flows. There may be some initially but in the sum total there should not be a negative one. You can take help of a qualified accountant to make the same for you. The security can be in any form. The primary security is the asset for which the loan is taken. eg. machinery, building, stocks, debtors, etc. Banks may insist on collaterals which can be anything from land, building, insurance policies, FDs, etc.
In the present scenario there is expected to be a cash crunch in the market. It is necessary that the money circulation has to continue in the economy for the same to grow. Normally in such times the customers don’t pay on time and that leads to the businesses tend to delay their suppliers' payments. This leads into a vicious cycle. This needs to be broken and the best way is to fund the credit gap through loans to the extent possible. This will be good for the economy but more importantly your suppiers will be happy which will help you to maintain a smooth flow of supply chain. Now you may say why should you bear the mantle of improving the whole economy rather than thinking about myself?!! On a macro basis this is necessary as a part of the system but more importantly if you strike a deal with the suppliers to provide you additional cash discounts for immediate payments. This will help you to mitigate the burden of interest on the loans.
Ranjit Natu is a practising Chartered Accountant and Partner in Taxation & Outsourcing in M/s. Natu & Pathak,Chartered Accountants.
He is also the independent Director of PNG &aSons Limited, GoldenSparrow Finance & Treasury Pvt. Ltd., as well as Penosh Transport Pvt. Ltd. and Penosh Finance Pvt. Ltd. A member of the ICAI since 2003, he has been awarded critical responsibility including appointment by the Maharashtra Government for financial investigation in the Telgi Fake Stamp Paper Scam case as a part of the Special Investigation Team (SIT).
He has been actively involved many social activities more prominently that of Vishwa Hindu Parishad and successfully delivered duties on various responsible positions. He is also one of the conceptualisers and a founder trustee of Niramay, the flagship social service project of VHP, Pune. Besides this , Mr Natu also serves as the first Inter-National President of Hindu Helpline at the moment along side Executive Council member of the Poona District & Metropolitan Badminton Association since many years and currently its Hon. Secretary.
Mr. Natu's impressive dossier also outshines with his earlier poisions as Managing Committee Member of Maharshi Karve Stree Shikshan Sanstha, Managing Committee Member of Shikshan Prasarak Mandali, Trustee on various trusts such as Hindu Helpline (Ahmedabad), Explore Kashi (Ahmedabad), Art &; Culture Council of India (Ahmedabad), Niramay (Pune), Poona District & Metropolitan Badminton Association (Pune) & Janajagaran Prakashan (Pune), Managing Committee Member of Shikshan Prasarak Mandali, and the Founder Secretary of Indo-Israeli Friendship Forum .and Hindavi Swarajya Mahasangh.