Small Business Loans – Promoting Small Scale Industries in India

Business is defined by the generation and distribution of goods and services for satisfying of social needs of the society. Without business finance, business can hardly perform its activities and cannot remain stable. Therefore, business finances are called the life blood of any business. Finance management is the art and science of controlling financial resources of a business to ensure their sustainable development over a period of time.

Every business needs funds to sustain its activities through the purchase of raw materials and to employ people to perform various tasks. Without these funds, a business can not meet its objectives. The purchase of raw materials is for the production of intermediate products like machinery, transport etc; while the acquisition of skilled workers to work on different projects is for employment of new manpower. However, all these cannot be possible without finance because money facilitates every business activity. Therefore, the term ‘business finance’ is used to refer to the total amount of money that is required by a business for its smooth functioning.

There are two types of business finances namely personal and institutional. Personal finance is obtained through the sale of goods and services and investment in raw material and labor. Small scale industries have small level of investment. They have limited scope for growth due to their inability to obtain large capital and funds. Since small scale industries have limited scope for growth, they are highly dependent upon industrial loans and support from banks for buying raw materials, machinery, labor and development finance.

In order to encourage small scale industries and encourage capital investment in them, there are many programs under the wings of Small Business Administration (SBA) and Micro Venture Capital (MVC). These provide small business with ready cash resources and other commercial loans and advances. These are generally not from individual entrepreneurs, but from venture capitalists and associations of such investors. This capital is provided to such businesses at subsidized rates under the ‘iegrow’ schemes of the government. These are some of the small business grants that India is offering to encourage small and medium scale industries to adopt automated manufacturing units and to create more jobs for people.

In order to achieve the goal of promoting investment, the financial markets must be developed and promoted so that the small business can make investments. As far as capital investments are concerned, the government has many financial programs like grants, loans and micro-enterprise associations that can promote investments through bank loans and advances. In the past, only banks and other big financial institutions were involved in these financial transactions. However, the scenario today, with the growth of the internet technology and enhanced globalization of finance, now almost all large financial institutions are becoming increasingly popular for making commercial investments in small and medium scale industries, and for making large acquisitions.

The government also understands that it cannot continue to support the finance industry by just providing subsidies and loans. Therefore, the financial markets have been liberalized so that other business firms can make their own investments. This has been done by creating various financial products like derivatives (trading currency or stocks against another commodity), forward contracts (buy goods at a fixed price from a seller within a specific time limit), swaps, and foreign exchange market. All these financial products are highly profitable, and they help to achieve the main purpose of financial sector development-employment generation. They have encouraged small and medium scale industries to make more investments in capital goods and production and create jobs.

The rural sectors are the backbone of the Indian economy. The government’s focus on development of the rural economy has led to increase in the construction of roads, better agricultural policies, and better irrigation systems. These policies have helped the rural population to become self-reliant and have also increased the efficiency of the small scale industries. As a result, the rural development has created a strong economic base for the national economy, and the government has been successful in achieving its developmental objectives.

Although the above developments have been successful, it still remains an issue whether the state government is providing enough employment. There are still many issues like lack of infrastructure, poverty, and unemployment in the remote areas. But with new ideas like the small business loans, and state business grants, the situation may change drastically. In fact, the rural development programs are being made more efficient by the state government with the help of federal funds.

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