Solve Financing Problems to Finance the Growth Plans of SMEs

SMEs are developing rapidly and flourishing enormously all over the world. Since its inception and establishment, there are some basic and extremely important requirements that must be met and adopted. These requirements include; infrastructure and employment requirements, it has developed information technology infrastructure along with sources of financing, which is the most important aspect of the sustainability of these SMEs.

The sources of financing are the pillars of strengthening these small and medium-sized companies.

SME (Small to Medium Business) is a convenient term to categorize businesses and other organizations that are somewhere between “small office-home office” (SOHO) size and the largest enterprise.

The lack of availability of timely and adequate funds has a huge adverse effect on the growth of these SMEs which in turn affects the growth of the Indian economy. These insufficient sources of financing constitute a crucial barrier to the development and sustainability of SMEs.

India’s economic development is highly dependent on the performance of small, micro and medium-sized enterprises. They are the engine of innovation, the entrepreneurial spirit and the enormous talent that is required for the development of the nation in the economic sector.

Indian EMS Sector:

This sector contributes to industrial production, provides employment to the masses. They also contribute extensively in exports. These organizations produce quality products for the national and international markets.

The presence of SMEs is widely recognized. The manufacturing sector is advancing rapidly thanks to the contribution of these organizations.

These SMEs are certainly doing their best, despite their limited sources. Still, there are multiple cases of these organizations facing funding problems.

The solution to the financing problems faced by SMEs:

The government has been taking initiatives such as the creation of the National Manufacturing Competitiveness Council, the announcement of the National Manufacturing Policy (NMP) and much more to energize and boost the manufacturing sector.

Banks have made steady progress in supporting SMEs. However, such approaches by banks to financing are limited and restricted because by controlling and managing risk, they ultimately create value. Therefore, banks are not always a legitimate solution as a source of financing. Access to capital markets is rare, in the case of SMEs. Therefore, such organizations are highly dependent on the funds provided by 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 available for SME financing. Meanwhile, traditional finance requirements are still actively used to create assets and working capital. Globalization is creating a demand for the introduction and development of new financial services. and support services.

The RBI should issue the necessary guidelines to all banks on the flow of credit. In addition, the Government must work rigorously to create a conducive environment for the growth of SMEs that limits the need for capital and debt.

Establishment of SME-targeted banks that give priority to lending to the SME sector.

Financing schemes for SMEs can be formulated and be beneficial. These can be very risky, but they promise big profits. There is also a need for a reduction in interest rates. SMEs have been paying high interest rates for bank loans. The loan structure needs to be restructured, urgently, as lower interest rates are an extremely important need for SMEs.

Late payments are another major area of ​​concern for SMEs leading to reduced working capital.

The recycling of funds and various business operations are greatly affected due to the delay in settlement. Defaulting customers are mostly large companies and SMEs, for fear of losing business, cannot report against them.

The government could set up an automated portal, where SMEs make their customer details available.

As is well known, for the government, the Budget is an opportunity to set new financial and economic goals, allocate financial resources and provide policy directions. During the Budget presentations, the Minister of Finance announces new policies, schemes, projects and allocates financing for the development of various sectors of the economy, to meet the general goals of socioeconomic growth.

For SMEs, the potential sources of finance are very limited. However, its usefulness is limited mainly due to practical problems. Crowdfunding and supply chain financing are some sources of financing.

Some more sources of financing for SMEs

The owner, family and friends of SME

An excellent source of financing. For the most part, these investors do not invest solely for financial gain and are willing to accept lower returns than other investors. The key limitation, however, for most of these organizations is that the funding they can get personally, from friends and family, is limited.

trade credit

SMEs can take credit from their respective providers. However, it is only in the short term and, if the providers are large companies that have identified and categorized them as potentially risky SMEs, the possibility of extending may be limited, for the duration of the credit.

business angel

A wealthy person who is willing to take the risk of investing in SMEs. However, they are only found in rarity. Once such a person is interested, he may become useful to the SME as he has excellent business plans and contacts.

Factoring and invoice discount

These sources help organizations raise funds. It is only short term and is mostly more expensive than an overdraft. However, with the growth rate of SMEs, their accounts receivable will increase, and the amount they can borrow through invoice discounting will also grow rapidly.

Lease

Leasing assets is a better option than buying them, since it avoids increasing the cost of capital. However, leasing is mostly possible on tangible assets.

list

An SME can be listed by acquiring a listing on the stock market. Therefore, raising funds would become less of an issue. But before listing can be considered, the organization must grow to a substantial size that listing is feasible.

Supply Chain Financing

SCF is new and in some ways different from traditional working capital financing methods, such as offering closeout discounts, as it promotes collaboration between buyers and sellers in the supply chain.

The venture capitalist

A venture capital organization is primarily a subsidiary of a company that has decent cash holdings and may need to be invested. Such subsidiaries are in a portion of its high-risk, potentially high-return investment portfolio. To attract venture capital funds, such an organization must have a business idea and strategy that can help create the high returns that the venture capitalist seeks. Therefore, operating in regular business, venture capital financing may be impossible for many SMEs.

Mentioned above are the various solutions for SMEs to face the problem of insufficient funding sources.