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29 March, 2024 14:49 IST
Financial Planning
   
How difficult is it to obtain a small business loan in India?
Source: IRIS (23-JAN-15)

Today, Small and Medium Enterprises (SMEs) make a very important contribution to the nation's economy with around 40% of India's domestic production. Obtaining a small business loan to set a new business venture is not an easy task. It requires a great deal of preparation. Besides, one also needs to obtain capital to fund their dreams, which can be fulfilled by applying for a small business loan in India. No matter what type of business loan you choose, you need to have everything in place for your loan to be approved before you even file the application.

Some of the major hurdles in the course of business development for SMEs include:

Financing: Lack of capital or access to timely financecan be termed as one of the biggest hurdles one may come across while setting up a new business.This could cause under-utilization of the manufacturing capabilities of SMEs.

Infrastructure: Infrastructure is important, however these facilities haven't reached the desired level in this country yet. Lack of infrastructure may restrictsmall-time business initiatives in the SME sector. Hence, better infrastructural facilities need to be given priority.

Technology: It is indeed difficult for SMEs to make use of cutting-edge technology due to obvious expenses associated with it. Lack of technology may place them behind in the race for success.

A major handicap in the development of SMEs is their inability to access timely and adequate finance. There are several reasons for the problems faced by SME financing, the most common being the lack of credit information and low market credibility of SMEs. A start-up has got everything, the ideas, the desire, and the plan. The only problem faced by them is the shortage of capital.Applying for small business loans with banks can be easy or difficult, as it mostly depends on how capable and promising the business is.

Regenerate SME Financing

There is an urgent need to regenerate SME financing. As mentioned earlier, SMEs have very limited access to the capital markets. SMEs are by and large depended on borrowed funds from banks and financial institutions. The borrowed funds are usually in the form of extended working capital. Today, however, due to the growing demand, small business loans and working capital are made easily available by banks and financial institutions.Start-up businesses also have the option to obtain Unsecured Business Loans without any collateral, where the borrower need not pledge any of his property or asset.

As SMEs are known to nurture entrepreneurial talent, the talented lotneedsto be facilitated with the desired finance through guaranteed funds. Apart from being timely, SME finance also need to be cost effective. Since banks and financial institutions have fastened their lending policies, it has become all the more difficult for a budding entrepreneur to get credit. Thus, small-business needs to come up with more creative options to find sources of capital.

(Contributed by SMEcorner)


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