Like in other developing nations, small and medium enterprises (SMEs) play a crucial role in the overall economy of India. This sector contributes to the development of entrepreneurial skills, generates employment and brings in income from exports. In the last decade, several reforms by the government have been initiated for the success of SME entrepreneurs. Some of these include products reservation, debt restructuring, sick unit rehabilitation, preferential procurement of goods from SSIs, and fiscal concessions.
Credit supporting the entrepreneur
The huge potential latent within the SME segment has resulted in several financial institutions and banks making provisions to provide sufficient credit to its owners. Most lenders offer credit support to small enterprises to spur its growth for the economy as well as to meet regulatory requirements of priority sector lending.
Preparing the proposal
Many small business owners find it tough to formulate the project proposal, which is an important requirement to avail of a corporate loan. The information and documentation need is also huge and often difficult for entrepreneurs to assimilate. However, there is no need to be discouraged as many well-known and reputed institutions assist entrepreneurs in preparing the complete proposal for submission.
It is often perceived that lending to small enterprises is riskier, which is why loans are generally offered at higher interest rates. Institutions often appear wary because there is a degree of lack of transparency among entrepreneurs.
However, this is a myth and no longer holds true in developed industries. Lenders require a strong business plan that clearly outlines the revenue and cost centers to determine the profitability of the operations. As entrepreneurs become tech-savvy, preparing the proposal and the financial business plan is not tough, which makes it easier for them to convince lending institutions.
In the past, it was often observed that entrepreneurs diverted the amounts received through corporate finance to uses other than those originally defined. This resulted in the SMEs facing a liquidity crunch. Today, banks and other lenders adopt stringent credit monitoring systems to ensure that the funds are used in proper channels to grow revenues and improve profitability of the companies.
Different product offerings
Historically, the number of product offerings for the SME sector was limited. Over the last few years, lending institutions have devised newer schemes to make it easier for entrepreneurs to access credit facilities from banks and financial institutions. Cluster-based products that are customized to suit the specific needs of small business owners are developed, providing several benefits to them.
Affordable interest rates
Contrary to popular belief, the rate of interest on loans for small and medium businesses is not very high. Lenders often adopt an internal rating system or rely on credit rating agencies to determine the risk of the business. Depending on the level of perceived risk, the interest rate is determined.
Entrepreneurs are advised to write down their ideas to develop these further. They also need to take the time to research the market. Conducting niche research will help you identify the potential customer base as well strategies that can help you succeed in reaching them. Building a strong business plan projecting future sales, costs, profits, and other financial information will help you raise money to become a successful entrepreneur. Finally, all small business owners need to adopt good financial habits to ensure the stability of their ventures.
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