Is it really easy to ensure financial loan for SMEs in India?
It’s indeed an uphill climb to get your loan sanctioned, if you seek it for an SME. Several banking institutes perceive risk factors, first. And, such businesses are evaluated at the brink of those risks. It’s just because of their mismanagement. Non-availability of invoices, improper documentation, lack of hierarchical structure of management, unknown buyers and no accounting system translate a bad situation into the worst one. Thereby, such businesses encounter failure in the optimal assessment of their working capital requirements. In the end, seeking financial seems a fat chance.
♣ Out-of-the-box planning: The government has rolled out business plans, such as Startup India, Make in India, Atal Innovation Mission (AIM), Support to Training and Employment Programme for Women (STEP) or Digital India. These programs are worth to strike gold. But, inadequate funds often push the small scale enterprises in the lane of strugglers. Why?
Such entrepreneurs focus on immediate needs. They fail to look beyond minute daily operations. The shortsighted business goals often end in bankruptcy.
This situation can be reversed through a better business planning. Tomorrow’s another day, which allows you to better the planning and thereby, its execution. The traditional banks churn through the nuts and bolts. This auditing takes months to nod for a loan. Therefore, premeditate the situation of cash crunch. Apply far ahead of such critical situation.
♣ Financial disclosure: Have you ever seen any small business publishing its turnover publically? Why?
Mostly, the small businesses register many small and big transactions. But, they fail to furnish its records. How can they provide that detail if they haven’t maintained them in a system? It’s a colossal reason at the grass roots level. The money lenders don’t disclose adequate financial conditions. Thereby, they do not evaluate their financial needs. Hence, the application for financial support gets rejected.
This situation can be combated & restructured through market & financial research and internal audit. Besides, promoter’s integrity and tracking should be recorded to develop credible information. These researches and auditing can also strengthen the possibility to sanction a loan.
♣ Concrete succession plan: Many family-owned business encounter slowdown during succession. Straightly, lack of succession plan causes it. The creditors wonder whether or not provide credit to the newly appointed owner. Simply put, the trust and goodwill can’t be built overnight.
Therefore, a concrete succession plan should be implemented upon estimating the risks about that situation. The company’s operation and productivity should be executed in such a way that the unforeseen forces can’t derail its ongoing plans.
♣ Adequate assumption of capital requirement: The small entrepreneurs come with wrong financial requirements. The idea of not to pay interest on excess funds always stays at the back of their mind. They turn blindfold to their expenditure, which expand on the scope of growing sales and production.
Therefore, perceive the accurate funds requirement. Follow effective financial governance models. Foresee the future expenditure that exaggerates with the growth.
♣ Choose the right product: Indian economy has a lot of unorganized moneylenders. The small business owners turn to them for fulfilling their requirements. But, many reputed banks have come with affordable credit facilities for SMEs. The modus operandi of new-age lenders is designed while keeping SMEs requirements, model of operations and their ability to repay into account.
♣ Good resources: Most often, the small business owners get off appointing an auditor or pro trainer or recruiter. It’s a need of hour to invest in the robust internal auditing, recruiting and training staff. Their role can induce uncountable breakthroughs in terms of hitting the bull’s eye and assessing credit requirements.
♣ Credit resources: Creditworthiness is often regarded as the ability to receive financial support. It is based on the reliability in paying credit back in the past. Banks evaluate the credit risk of a prospective debtor, foreseeing their ability to pay back the debt and an implicit prediction of the likelihood of the debtor defaulting.
The small business owners should appoint a third party to measure up their credit risk and creditworthiness. Its unbiased report will help the entrepreneur to get relaxation in the interest rate on the loan. Moreover, the creditor may increase the limit of the loan.