Small and Medium size Enterprises may be a new term in economics, but it is an ancient system in its existence. It starts from earlier small-scale animal husbandry or dairy farming to making mechanical parts. All are perfect examples of SMEs. In the present time, ancient enterprises are progressing and presented in a more polished way.
The SME industry is growing daily and plays a vital role in the national economy. And it will perform well on global industrial platforms too. A good source of capital is the basic need of the SME industry. Proper assistance by the govt. This needs constant growth of these enterprises. It cannot be denied that it takes an integral part in the economy of a progressive nation.
But the Small and medium size enterprises have to deal with many obstacles, mainly in finance. The enterprises’ owners do not have the lump sum amount of money to set up the business. They have to be dependent on the government schemes and private investors. They must cross or overcome the next hurdles to get the proper access to the capital to invest in the business. But most SMEs face difficulties in accessing finance. The typical difficulties faced by the SME/SSI may be enumerated as follows-
- The symmetric bridge of information is very much needed between suppliers and demanders. They are the most influencing pillars of a business.
- Sometimes there is less transparency in paper works, and business dealings may have trouble gathering findings.
- Acclaimable aspects of SMEs are the employment of many ordinary people. But the business owner cannot afford to hire skilled labor because of the scarcity of funds. They have to deal with the unskilled workforce, which may affect productivity.
- Without proper planning and ever-changing market needs sometimes influence the profit. If the business cannot establish a good turnover, the owner faces difficulty arranging investments from private investors or banks.
- Developed sales channel plays an integral part in promoting business. A proper marketing strategy can most gear up Small and Medium size enterprises. All the basic needs of the business depend on quick access to funding.
But the vital part of the problem is arranging the capital to initiate business. The next important step is also about money; maintaining a good flow of money to manage the continuous production, transportation cost and other essential expenditure.
New sustainable accessibility of finance is the primary demand of SMEs. Easy access to capital might boost productivity, and the advancement of SMEs can be a reason for national financial acceleration and growth.
- The working capital and asset building, including workers’ pay, require continuous funds. The primary source of funding is credit from Banks and schemes for SMEs. Small Enterprises find it challenging to acquire credits as the business is new. There are no assets for SMEs to show or mortgage. Due to the defaults, the Banks checks on the credit capacity leading to the unavailability of credit to the SME.
- Most of the time, payment to the lenders is delayed due to the non-availability of revenue for the SME. The delayed repayment of loans and credits eventually leads to a bad credit score barring the SME from further availability of funds from the banks.
- Insurance for the risk factor of perishing SME is not available. Such a factor again leads to fear for financial institutions passing on credits to the SME.
- Risk management services are costly business divisions unavailable in tiny business houses. Without the proper risk management, the SMEs find it challenging to manage the funds long-term, leading to a credit burden and slow development progress.
- SMEs face severe problems in finding private investors. They are unenthusiastic about providing loans to SMEs because of high-risk factors. Sometimes the private investors agreed to grant a loan with a high-interest rate. But there is no explicit assurance of getting back the invested amount with interest. This is the reason the SMEs face difficulties in arranging finance.
- Banks are reluctant to provide loans to SMEs. They prefer to allot loans to the big industries because of the assured return of the loan with interest. While many SMEs become defaulters. The risk factors play a role in not getting loans from the banks.
- There is a lack of information about government aided schemes. Improper campaigning about the schemes is the main reason they could not avail the benefits of the schemes.
- We all know the time-consuming official procedure to take advantage of government-regulated credit schemes. One has to contact the officials regularly because of the procedure. This might be problematic.
- A lot of official paper works have to be completed before obtaining the govt. Schemes; might restrict the owner from avail of the benefits.
The result of the difficulties
Lots of hindrances can affect productivity and profit. SMEs sometimes cannot provide an excellent return to the investors. So, the private investors always are dubious about the investment in SMEs, while they get an assured return from the big-scale industry. These may lessen the growth rate of SMEs. Managing the whole procedure on a low budget is the priority of an entrepreneur; it will prevent them from implementing new and innovative ideas for the betterment of the business. The critical focus of an entrepreneur should always be the development of the business and sustainability in the competitive market with constant growth. Economic and moral upliftment is necessary for Small and Medium scale enterprises.
Innovation is essential to survive in the industry with a strong customer relationship. All the barriers should be removed between the investors and the entrepreneur. Always keep an eye on the consumers for their expectations. A competitive market is highly acclaimable by consumers as well as enterprises. Economic growth is only possible when the mass leads to a good livelihood. A large number of employments are involved in SMEs. Both rural and urban middle-class semi-skilled persons are getting full-time employment because of the SMEs. It has a vital role in a progressive socio-economic world.