Making Business ‘Credit’able- Financing Options for SME’s

by September 29, 2017 0 comments

Loan from Banks

Talking about the same, SME’s have different kind of financing options as per their easy reach and compatibility. Raise Money through Banks Loans is one of the main sources of raising fund for the business. Public sector banks have been pioneers in providing financial assistance to several SME’s which can approach the banks for loans under various schemes. The bank provides two kinds of financing for businesses. One is working capital loan, and other is funding. Working Capital loan is the loan required to run one complete cycle of revenue generating operations, and the limit is usually decided by hypothecating stocks and debtors. Funding from bank would involve the usual process of sharing the business plan and the valuation details, along with the project report, based on which the loan is sanctioned.

Challenges for SME’s to get the Finance

  1. Traditional Lending in India for Micro, Small & Medium Enterprises (MSMEs) is a very tedious process that can stretch up to 2-3 months in duration.
  2. Also, the need for complicated documentation & collateral by banks/financial institutions is demanding especially at the stage of set up and business growth. Many entrepreneurs pledge their personal assets & borrow from family, friends and relatives instead of structural financial institutions.
  3. The high cost of interest is also a serious deterrent. It clearly cuts the competitiveness of the enterprise which is anyway trying to foothold in the beginning.
  4. Lack of proper guidance and lengthy paperwork adds to their difficulty to raise funds from Banks. Furthermore, there is fear of rejection, which carries a perceived stigma and may prevent a number of creditworthy borrowers from applying.

In the end, SME’s seeking funding options must have in place a team that is convinced that there is a need to consider seeking funding options, either for sustenance or growth. Additionally a good rating reflects an organization’s credit worthiness and that would help determine its probability of meeting financial obligations, be it debt servicing or equity allocation. All this would go a long way in helping SME’s get their required funding without much worry or hassle. They should improve their governance and risk management practices, maintain proper books of accounts, submit correct information to banks and all authorities, and make their operations more efficient and productive to get easier access to finance from banks and other investors. This way the SME’s would become more competitive and efficient and contribution further to the economic development of our country.

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