Fund raising is the biggest challenge faced by small and medium enterprises in India, limiting their ability to retain talents, innovate and do necessary research and development, a pre-budget survey conducted among 540 SMEs has found.
Not surprisingly almost all of the companies surveyed expect the Narendra Modi government’s budget to introduce schemes to obtain credit without complex collaterals and to get term loans at lower interest rates. Interestingly, Goods and Services Tax is not the biggest pain point and hence not the most expected outcome from this budget.
The survey by Firstbiz and Greyhound Knowledge Group had listed out other five challenges namely limiting regulatory polices, unavailability of modern affordable technology, lack of basic infrastructure facilities, absence of exclusive marketing platforms and distribution networks and inflexible labour laws and availability of affordable skilled labour.
Of the total respondents, 79 percent said identified dearth of easy finance and credit instruments as the key challenge they face.
Most Indian SMEs start out with a minimal capital and so their fund requirement increases in no time.
“The lack of easy credit is stagnating growth of SMEs which in turn is affecting national growth in terms of GDP, Import, Export and Employment. Non availability of credit at the right time can affect business growth at many levels, this why a lot of small businesses often shut shop after not being able to generate margins,” the survey has said.
As many as 84 per cent of the companies said that they are facing difficulties in retaining talent as a fund crunch is crippling their ability to pay their employees. Of the total respondents, 74 per cent said lack of funds is also negatively impacting marketing of their products and services and 67 per cent said they are not being able to innovate and conduct enough research and development.
As many as 80 per cent of the companies said it is the complex collaterals required to obtain term loans that they have felt is the biggest stumbling block in getting required funding assitance. Cumbersome procedures and delay in fund disbursement and lack of a standardised project appraisal system for term loans are other key concerns.
Graphic:
The difficulties faced by the tier-2 and -3 cities are manifold compared with those in the tier-1 cities. According to the survey, organizations from tier-3 cities find it more difficult to obtain credit owing to high interest rates and those from tier-2 and -3 cities find obtaining term loans without collaterals a major obstruction as compared to tier 1 cities.
Interestingly, 71 per cent of the companies were not aware of the government’s credit guarantee scheme for access to collateral free credit from banks. More importantly, of the 29 per cent respondents that were aware, 99 per cent said the scheme did not help them as it is difficult to access information on the scheme from banks.
“Small organizations hold high expectations that this budget will have a policy that encourages creation of an SME exchange – dedicated stock exchange for SMEs acting as a common financial organization for financial and equity trade,” the survey has found.
Budget expectation graphic:
While only 89 percent mid-market organizations are expecting this, smaller organizations have higher expectations and have rated it at 94 percent, it said.
You can download the entire report here.
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