Right financing instruments have a great bearing on the success of an enterprise, be it a conventional manufacturer or a knowledge/innovation-based SME. The traditional method of financing was ?asset-based lending?, which took into account mainly the physical assets of an enterprise. Over the years, more options have come in. Now innovative financing tools like bill financing, factoring, vendor finance and even SME cards are available to enterprises.
The emphasis on physical assets is not in tune with today?s knowledge-based economy, where enterprises lay more emphasis on their intellectual property (IP) assets than on their physical assets. And knowledge enterprises need flexible and multi-stage financing in the three life-cycle stages of incubation, growth and expansion.
Innovative SMEs, having intellectual capital as the primary generator of value, go in for innovative finances in the form of ?angel funding? at the early/incubation stage, ?venture capital? in the growth phase and equity support from capital markets in the expansion phase.
Angel and venture capital investors not only provide risk finance to an enterprise but also handhold it by providing management support, market linkages and technology access to build and harvest its IP portfolio. I would say this form of angel and venture capital could be thought of in terms of ?Patent Capital?, which is based on the valuation of brands and other IP assets of an enterprise.
From the government side, the loan in the incubation stage is provided by the Technology Entrepreneur Promotion Programme (TePP) of the department of science and technology, while in the growth phase, collateral-free loans are made available through guarantees from the Credit Guarantee Trust for Small Industries (CGTSI). Also, Sidbi manages state-level and national venture funds for such SMEs. During the expansion phase, apart from equity, such enterprises require working capital for their immediate needs, and term loans for their long-term needs. Bill financing and factoring services driven by Internet banking provide new paradigms in working capital finance.
As competitive pressures increase from low-cost, technologically superior countries in the region, Indian SMEs have no choice but to spend on technology upgradation and research & development to build indigenous capabilities?both of which are supported by the Technology Development Board and the Home Grown Technology Programme of TIFAC, in the form of technology debt.
These are, however, not enough. In keeping with the changing times, innovative financing alternatives that best cater for the specific requirements of an enterprise, are needed to negotiate this new paradigm. Structured and flexible financing, customised to the SME?s needs, is the need of the hour. A new breed of innovative and customer-centric financial intermediaries may be required to do this task.
The writer is an IPR trainer & consultant. Email: ipmanisha@rediffmail.com