Less Known Finance Solutions for SMEs January 23, 2012

It is a known fact that the MSME sector of India is the major contributing sector in the process of employment generation, economic growth, import & export & most remarkably to GDP.

In spite of this knowledge, we are frequently approached by SMEs & start-up businesses that are facing problems in obtaining financing, although numerous Govt. schemes & priority to SME finance in most banks have been included.

For all those SMEs, it is important to understand that the actual problem is not the bank policies or Govt. schemes but indeed, the lack of sufficient knowledge among entrepreneurs. While Govt. has endless schemes like, CGTMSE (Credit Granted Trust for Micro & Small Enterprises), CLCSS (Capital Linked Capital Subsidies), etc, it is for SMEs to decide which would be the best solution for problems like, high cost of machineries, lack of capital finance, collateral security, etc.

CLCSS Solution: This scheme was introduced by Central Govt. through the ministry of SSI Govt. of India in order to tackle the problem of high cost of modern machineries. According to this scheme, technical up-gradation for SMEs in specified sectors is facilitated by providing them with 15% capital subsidy.

CGTMSE Solution: The Central Govt. addressed the issue of collateral securities by introducing the CGTMSE scheme, whereby collateral-free credit is availed to SMEs, for start-ups, up-gradation, expansion & capital requirements.

At present, SMEs are receiving working capital & financing term loans of up to 100 lakhs from most SIDBI & nationalized banks, that too without any collateral securities. This is made possible only due to credit guarantees from the CGTMSE.

Alternative Solutions: Besides the usual financial aids from financing & commercial institutions, there are a lot many other finance alternatives like, Venture Capital, Private Investors & Private Equity.

For SMEs to have a smooth run on their success path, they require frequent support from banks, alternative finances & their own resources. Thus, if SMEs can choose the right resources at the right time, they can easily ensure a smooth cash flow.