The Current State of Small Business Funding in India

Small businesses are the backbone of our economy.. Small businesses create more job opportunities. While every business aspires to be like Tata or Adani, you have to realize that even they started off as small businesses and then grew into what they are today.

So, what are small businesses? What is their state in the country today? How can these get small business funding? And what are the challenges they face? You will have answers to all these questions by the end of this article.

What are Small Businesses?

As per the Ministry of MSME, the way to classify a business as small is different for the manufacturing sector and for the service sector.

In the manufacturing sector, a business is considered small if the investment in plantand machinery is anywhere from INR 25 lakhs to INR 5 crores.

In the service sector, a business is considered small if its investment in equipment is between INR 10 lakhs and INR 2 crores.

Current State of Small Businesses

Ever since the Prime Minister announced his “Make In India” campaign, small businesses have received a major boost owing to the fact that a lot of people started buying things from Indian businesses. The government has also been trying to provide businesses involved with traditional Indian products more exposure by getting them in the public light. This has provided a much-needed boost to the small-scale businesses.

Traditionally, banks have been wary of lending to small businesses. The government has recognized this problem, and as a solution, the financial budget for 2018 allocated INR 3,794 crores solely for lending credit to MSMEs. So, if you are the owner of a small business, don’t worry, good times await you.

Government Small Business Loans

Here are some of the most promising schemes for small business funding:

1. MUDRA Yojana

Launched in April 2015 by the Prime Minister MUDRA Yojana is divided into 3 products: Shishu, Kishor and Tarun.  Under Shishu   loans of maximum amount of  INR 50,000 are provided. Under Kishor loans up to INR 5 lakhs and  under Tarun loans up to INR 10 lakhs are provided..

You can avail any of these loans based on your requirements.  MUDRA loans are provided by Commercial Banks, Regional Rural Banks (RRBs), Small Finance Banks, Cooperative Banks, MFIs and NBFCs . The interest rate on the loan, however will vary.

2. Credit Guarantee Fund Scheme for Micro and Small Enterprises

Government of India and Small Industries Development Bank of India (SIDBI) set up the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) in August 2000 with an initial corpus of Rs. 2500 crore to be contributed by Government of India and Small Industries Development Bank of India (SIDBI) in the ratio of 4:1. The aim of this scheme is to provide collateral-free loans to small businesses. You can get loans up to INR 2 Crores   without any collateral. You can avail loans under this scheme from many public and private sector banks. If you opt for the Guarantee cover, the lender will get cover upto certain percentage for recovery of loans covered under this scheme.

3. Startup India Action Plan

The aim of this plan was to encourage more start-ups. Start-ups find it difficult to get investors and that is the main reason many of them do not turn into stable businesses. As a remedy to this situation, the government launched the Start-up India Action Plan. Not only does this plan help fund start-ups, but also provides tax exemption to start-ups for their first three years and also to investors on capital gains.

4. Government Subsidy for Small Business from NSIC

National Small Industries Corporation (NSIC) provides various subsidies to small businesses to help them grow. The subsidies are provided for raw materials, marketing assistance, performance and credit rating, and bill discounting. Each of these subsidies is aimed at a specific requirement of the business.

You can use this bank loan documents checklist for the list of all the documents you need to carry to get your loan approved.

Challenges Before the Small Businesses

Small businesses face many unique challenges when compared to large businesses. However, there are ways to deal with these problems and emerge at the top.

1. Money

One of the biggest problems faced by small businesses is getting enough money. Only a small percentage of the total business loans given are given to small businesses. This puts small businesses at a huge disadvantage. But the multiple small business funding schemes launched by the government will hopefully turn the tide in favour of small businesses.

2. Knowledge

Another major problem faced by small businesses is lack of knowledge. For any business to succeed in today’s competitive market, you have to be aware of the industry, your competitors, the customer’s demand, and any rules and regulations that affect your business. Small businesses often lack the sources to acquire all this knowledge. But the government is also setting up training centres and knowledge bases to help you get all the information you need.

3. Client Base

Quite a lot of times with small businesses, very few clients contribute to the majority of the revenue. When this happens, the business becomes extremely dependent on these few clients and any action by them can affect your business to a huge extent. To avoid such a situation, it is important that you diversify your client base.

4. Improper Planning

It is not enough to just want your business to succeed. You have to come up with a feasible plan to make it happen. Most of the times, small business owners get entangled with the day-to-day activities and the short-term goals of the business, and end up neglecting the long-term goals. A plan that prioritises both is a must for small businesses.

Expectations from the Market

The current market is, no doubt, tough on businesses. But you can succeed with proper planning and good utilization of funds. If you are offering a quality product at the right price, there is definitely a customer base for you. All you need to do is get the word out and make more and more people familiar with what you have to offer.

With the support that the government is offering to small businesses, you can definitely succeed. The key to surviving any kind of market is to make yourself indispensable to your customers and not spread yourself too thin financially.

Small businesses not only benefit the owners but also help in the economic growth of the country, and preserve and promote many traditional crafts. They provide employment to people in the rural areas and people who may not have completed their formal education. The future for small businesses looks very bright right now with more funding opportunities opening up to help them.