SME’s are multiplying and prospering tremendously all over the world. There are some essential and fundamental requirements that must be met before the SME can be established. These include infrastructure, employment requirements, a well-developed information technology infrastructure, and funding sources. This is crucial for the long-term sustainability of these SME’s.
Funding sources are the pillars of strength for small and medium-sized businesses.
SME (small-to-medium enterprise) is a term that can be used to describe businesses or other organizations that fall somewhere between the “small office/home office” (SOHO) and the larger enterprise.
The inability to access adequate funds on a timely basis has a substantial adverse effect on the growth and development of these SMEs, which then affects the growth and development of the Indian economy. Insufficient funding sources are a significant barrier to the growth and survival of SMEs.
India’s economic growth is heavily dependent on the performance and success of small, micro, and medium-sized enterprises. They are the engine of innovation, entrepreneurial spirit, and immense talent that is essential for India’s economic development.
Indian SME sector
This sector is vital for industrial output and provides jobs to many. They are also a significant contributor to exports. These organizations produce high-quality products for both national and international markets.
SME’s are a well-known fact. These organizations are a significant contributor to the rapid growth of the manufacturing sector.
These SMEs, despite having limited resources, are doing their best. These organizations still face funding problems in multiple instances.
SME’s funding problems solved
To energize and support the manufacturing sector, the government has taken many initiatives, such as establishing the National Manufacturing Competitiveness Council and announcing the National Manufacturing Policy (NMP).
SME’s are being supported by banks in steady steps. Banks’ funding options are not always the best. They create value by managing and controlling risk and creating value. Banks are not always the rightful funding source. SME’s have limited access to capital markets. These organizations rely heavily on borrowed funds from banks and financial institutions.
Most commercial banks offer extended working capital, while financial institutions can provide investment credit. Universal banking services, working capital, and term loans are becoming available for SMEs for funding. Meanwhile, the formal requirements of finance are still actively in use for creating the asset and working capital. Globalization is generating a demand for the introduction and development of new financial and support services.
All banks should be provided with the necessary guidelines by RBI regarding credit flow. The Government must work hard to create a favorable environment for growth in SMEs by limiting the need for debt and capital.
SME-targeted bank that lends to the SME sector.
SME financing schemes can be formulated, and they can be very beneficial. Although these may be risky, they can provide great returns. A reduction in interest rates is also needed. SME’s have been paying high-interest rates on bank loans. SME’s have an urgent need to restructure their loan structure, as lower interest rates are a critical requirement.
SME’s are also concerned about delayed payments, which can lead to lower working capital.
Dues payment delays can have a significant impact on the recycling of funds and other business operations. Large enterprises are the most likely to default, while SMEs are less likely to file a complaint against them.
The government could establish an automated portal where SMEs can make available customer details. In the event of defaults in payment, the government can send reminders to defaulting organizations.
It is well-known that the Budget provides an opportunity for the government to set new financial goals and economic targets, allocate financial resources, and give policy direction. The Finance Minister announces new schemes, projects, and funds finance to support the development of various sectors of the economy in order to achieve the overall goal of socioeconomic growth.
The potential sources of financing for SMEs are minimal. Their usefulness is limited by a number of practical issues. Crowdfunding can also be used to finance chain projects.
Here are some additional funding sources available for SME’s
SME owner, family, and friends
This is an excellent source of financing. These investors are often not looking for financial gain and will accept lower returns than other investors. The main problem for these investors is that they have limited access to the financial resources that they can get from their friends and family.
SMEs can get credit from their suppliers. However, it is only short-term credit, and if the suppliers have identified them as potentially risky SMEs, the chance to extend credit may be limited for the credit term.
The business angel
An individual is wealthy enough to be willing to take on the risk of investing in SMEs. They are rare. They can be helpful to the SME if they are interested since they have great business plans.
Factoring and Invoice Discounting
These sources allow organizations to raise funds. This is usually more expensive than an overdraft and is therefore only temporary. With the SME growth rate, however, their receivables and, thus, the amount they can borrow through invoice sale will increase rapidly.
It is cheaper to lease assets than buy them. Leasing is only possible for tangible assets.
A listing on the stock exchange can allow an SME to become listed. This would make it easier to raise finance. However, before a listing can be considered, the organization must reach a sufficient size to make it possible.
Finance for the supply chain
SCF is a new concept that is different from traditional working capital financing methods such as settlement discounts. It encourages cooperation between buyers and sellers throughout the supply chain.
Venture capitalist organizations are usually subsidiaries of companies that have cash reserves and may need to invest. These subsidiaries can be a high-risk and potentially high-return component of an investor’s investment portfolio. Venture capital funding is attracted to such organizations that have a business strategy. Venture capitalist funding may not be possible for many SMEs if they are in regular business.