Top 3 challenges faced by SMEs in India

In India, small and medium-sized enterprises (SMEs) are facing several challenges in the form of procuring credits, business competitions and financial stability, but the most challenging aspect is developing the business amidst competitors and monopoly. Some businesses are the backbone of the Indian economy as it helps in contributing to the gross domestic products (GDP) of the nation and the revenue from export and import trade. It also helps in giving employment to weaker and marginalized section of the communities. Despite having these advantages SME's faces several challenges in the growth of the business. Some restraints are discussed below:

Absence of modern technology

The concept of modern technology is important when you avail for business loan from money lending institutions. Most of the lenders are calculates the monthly debit and credit sales of the business by analysing the point-of-sale (POS) system. The POS machines helps in keeping the track of sales. But in many cases small business does not use online business transactions. According Reserve Bank of India (RBI) there is a continuous fall in the online/digital platform as small business owners do not promote cashless transactions. In these cases, many small businesses won't be able to avail micro small and medium enterprises MSME loan. Therefore, lenders are required to invest in improved financial technologies, and facilitate technological loan products.

More focus on credit score

Credit is one of the biggest problems in starting a SME business. Mostly no lending institutions offer the cost for starting the business. The MSME loans require complex documentation, the requirement of vast collateral and strict repayment issues with high interest rates. That makes the loan sanction even more difficult. To manage this, issue the government of India started the CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) to offer guaranteed loans and credits to SME's without any problems.

Collateral issues

The collateral issue is one of the most important problems faced the SMEs. Owners have to pledge an asset before applying the loan. There are many business owners who do not have business property, and they won't be able to avail the loan. In these cases, many small businesses in India apply for unsecured business loans from NBFCs, that approve loan amount without collateral, and they can fulfil their requirements without pledging anything.

Some other issues include problems in financial literacy to entrepreneurs and project and project appraisal that are not standardized. According to studies, the numbers of business owners in India are far behind in financial literacy. They don't know the updates in technology. In some cases, small business owners do not think NBFCs and online lending as the safe and a secure option with the fear of disclosing personal information.

They fear that their information will be mistreated. An up to date knowledge of technological innovation in business is very important to improve the goodwill and financial stability of the enterprise.

Many lending organizations calculate the lending risk on different basis. Therefore, the risk of evaluating the lending is based on different factors including eligibility criteria. Some lenders focus on the business plan and the projects being submitted by the borrowers to access the credibility. Still, there are no rules or standards for evaluating the project appraisal. This lack of standard in evaluating the eligibility criteria of creditworthiness of the borrower can be challenging for borrowers in preparing their loan application.

To conclude, the development in the financial technology has improved the methods used by the Indian financial institutions to moderate. In today's scenario moneylenders and financial institutions are focused on addressing the challenges being faced by SME's in India. Institutions are assisting them to get SME finance without any delay or problems. They allow businesses to avail SME financing without must delay and pause. These criteria will allow lenders to resolve the problems faced by SME's and also help them in the growth of their business.