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Ways to Finance Small and Medium-Sized Companies

Heavy machinery companies in India struggle while ascertaining monetary support. If the right knowledge is imparted to industries, then accessing loans and monetary help would be easy.
BY Jaspreet Kaur
Feature Writer, BusinessEx
Nov 13,2018

Funding is the requirement that every small and medium-sized manufacturing company need to ponder on. Getting off the ground is not quite easy as the company needs to ascertain a precise location, business model, workforce and capital. These essentials are utmost needed to kick-start any business unit.

Over the years, companies face problems to acquire one essential out of the lot that is, monetary support, which is significant to actualize the dreams. In the manufacturing industry, financing is required in each and every segment of the business, from establishing the company to its expansion. As a result, funds are a must for the sustainability of a company.

Why is Accessing Monetary Aid Difficult for Small And Medium-Sized Heavy Machinery Companies?

The enormous sphere, SME, encompass varied kinds of companies based on their growth level. The Asian Development Bank distinguishes SME companies in three broad categories namely, Startup Stage, Survival Stage and Growth Stage. These categories denote the level of challenges that companies face while ascertaining financial aid.

Companies coming under the start-up level category face challenges Major challenges in accessing finance reported by enterprises in this stage included the difficulty in providing collateral or a guarantee, processing time for loan applications, lack of knowledge about available schemes, and procedural complications, in that order. Enterprises also felt that high service fees for loan requests and difficulty in completing required documentation were challenges. Enterprises in the start-up stage may not be able to provide collateral for a loan and they lack knowledge about available schemes, which may hinder them from choosing the most effective option for financial assistance. (Source- Asian Development Bank survey)

While the companies in the remaining two categories face similar challenges but at a higher degree. Their problems are the same, but their stages and hence, requirements are entirely distinct. Companies in Survival Stage and Growth Stage primarily require funds for expanding their business and managing day-to-day expenses.

Sources to Acquire for the Financial Aid by Companies

Generally, companies look for financial aid or investment. However, they utilize the financial sources that are reliable and immensely taken. In order to recognize different types of loans, ADB (Asian Development Bank) present a data wherein, it subdivides loan into the following categories.

  1. Working capital loan- It includes personal saving and funds, money borrowed from kin and friends, family wealth, Public banks and private banks.
  2. Collateral financing- It includes public banks and cooperative banks.
  3. Short-term loans- It includes moneylenders, private banks and cooperative banks.
  4. Overdraft- It includes public banks, private banks, cooperative banks and personal funding.
  5. Long-term loans It includes moneylenders, public banks, private banks, cooperative banks, SIDBI and personal savings.

The SME companies need to decide out which amongst the above-aforementioned resources they want to acquire after estimating the risk factor involved and their suitability.

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