Short Term Sources Of Finance Available To A Small Business Solve Funding Issues to Finance SME’s Growth Plans

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Solve Funding Issues to Finance SME’s Growth Plans

Small and medium enterprises are growing and flourishing rapidly all over the world. After its initiation and establishment, there are some very important and basic requirements to be met and adopted. These requirements include; Infrastructure and employment requirements, a developed information technology infrastructure and funding sources, which are the most important aspects of the sustainability of these SMEs.

Financial resources are strong pillars for such small and medium enterprises.

SME (Small to Medium Enterprise) is a convenient term to classify businesses and other organizations that are between “small office-home office” (SOHO) size and large enterprises.

Non-availability of timely and adequate funds has a major adverse effect on the growth of these SMEs which affects the growth of the Indian economy. Such inadequate sources of funds act as a significant constraint in the development and sustenance of small and medium enterprises.

India’s economic development is highly dependent on the performance of small or micro and medium enterprises. They are powerhouses of innovation, entrepreneurship and vast talent, which is essential for the development of the nation in the economic sector.

Indian SME Sector:

The sector contributes to industrial production, providing employment to the common people. They also have a great contribution in exports. These organizations produce quality products for national and international markets.

The presence of SMEs is very acceptable. The construction sector is progressing rapidly due to the contribution of these institutions.

Undoubtedly, these SMEs are performing well despite their limited resources. Still, there are many cases of these institutions facing funding issues.

Solutions to Financing Problems Faced by Small, Medium and Medium Enterprises:

To strengthen the manufacturing sector, the government is taking initiatives such as the formation of the National Product Competitiveness Council and the announcement of the National Product Policy (NMP).

Banks have taken steady steps to support small and medium enterprises. However, such approaches to funding by banks are limited and restricted because by controlling and managing risk, they ultimately create value. Hence, banks are not always the right solution as a source of funds. Access to capital markets is rare, in the case of SMEs. Hence, such institutions depend on borrowed funds from some financial institutions and banks.

Most commercial banks provide extended working capital and financial institutions provide investment credit. Universal banking services, working capital and term loans are becoming available to SMEs. Meanwhile, the traditional needs of finance are still actively used, to create assets and working capital. Globalization is creating new financial introductions and demands for development. and support services.

RBI should issue necessary guidelines to all banks on disbursement of credit. Furthermore, the government should work hard to create an enabling environment for the growth of small and medium enterprises that curbs the need for capital and credit.

Establishing SME target banks giving priority to lending to the small and medium sector.

Financing schemes for small and medium enterprises can be formulated and can be profitable. It can be highly risky, but promises huge returns. Interest rates also need to be reduced. Small and medium enterprises have been paying high interest rates for bank loans. Since low interest rates are very important for small and medium industries, the credit structure should be restructured immediately.

Late payments are another major area of ​​concern for SMEs that reduce working capital.

Reuse of funds and various business operations are mainly affected due to delay in payment of dues. Defaulting customers are mostly large enterprises and SMEs cannot report against them for fear of business loss.

The government can set up an automated portal, through which SMEs provide their customer details. The government can also send automatic reminders to defaulting institutions, in case of payment default.

As it is well known, the budget is an opportunity for the government to set new economic goals and objectives, allocate financial resources and give policy direction. During the budget presentation, the finance minister announces new policies, plans, projects and allocates funds for the development of various sectors of the economy to meet the overall goals of economic, social and economic growth.

For SMEs, the potential sources of finance are very limited. However, their utility is often limited due to practical problems. Crowdfunding is also some of the funding sources that supply chain financing.

Some additional funding sources for SMEs

SME owners, family and friends

An excellent source of finance. Often, such investors do not invest solely for financial gain and are willing to accept lower returns than other investors. However, the main limitation, for many of these organizations, is that the finances they can raise individually, from friends and family, are limited.

Trade credit

SME can take credit from their respective suppliers. However, this is short-term and, if the suppliers are large companies that have identified and classified them as potentially risky SMEs, the possibility of extending the credit period may be limited.

business angel

A wealthy person who is willing to take the risk of investing in an SME. However, they are only rarely found. Once such people are interested, they can be useful for SMEs, as they have excellent business plans and contacts.

Factoring and invoice discounts

These sources help organizations raise finance. This is only short-term and more expensive than an overdraft. However, with the growth rate of SMEs, their receivables will increase, so the amount they can borrow from invoice discounting will also increase rapidly.

Leasing

Renting is a better option than buying a property, as it avoids increasing capital costs. However, leasing is often possible on tangible assets.

Cataloging

An SME can be quoted by getting a listing on a stock exchange. Hence, the problem of raising finance will be reduced. But before listing can be considered the organization must grow to a size large enough to be listed.

supply chain financing

SCF is new and differs from traditional working capital financing methods such as settlement discounts as it promotes collaboration between buyers and sellers in the supply chain.

venture capitalist

A venture capitalist organization is often a subsidiary of a company that has eligible cash holdings and needs to invest. Such subsidiaries are a high-risk, potentially high-return portion of their investment portfolio. To attract venture capital funding, such an organization must have a business strategy and idea, which can help generate the high returns sought by the venture capitalist. Therefore, when operating as a regular business, venture capitalist financing may be impossible for many SMEs.

The above mentioned are various solutions to solve the problem of insufficient funding source for SME.

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