If you want to be an entrepreneur and to set up a manufacturing unit, your first stop will be in the bank for the credit support. During the loaning process MSMEs face a lot of challenges. And one of them is dealing with banks for getting loans to expand the business. Let’s glance at how things go wrong and how to deal with emerging situations.
MSMEs are the backbone of the Indian economy
As everyone knows MSMEs are the pillars of Indian economic growth, then you don’t need to hesitate to demand loan from banks. Don’t think yourself as begging for money. Instead of that have some attitude and change your self-image before going to deal with the banks for loan purpose. Even then there is a major difference between a loan taken by MSMEs and loan taken for personal consumption. MSMEs boost the entire economy as an entrepreneur with a loan creates an asset. Out of which he pays to the employers, transporter, product supplier. Along with that, he pays taxes to the Government, as indirect and direct taxes. The small chunk of money, which remains at the end of all this, what he or she can call his or her own share of profit.
So, the financing of MSMEs has a specifically distinct function. It has a wonderful feature which is absolutely distinctive from private loans and different loans are taken for one’s very own non-public consumptions. But the contributions of MSMEs to the countrywide financial system at the moment is so obscured in a mechanical manner the Bankers are skilled and function, that they hardly make any difference in treatment, among financing MSMEs and financing for private consumption.
How insecure are our Bankers! How great deal security is sufficient protection? There is also some other important difference among MSME loans and Personal Loans and this is with regards to the security requirement of Banks. Actually, as in line with the Reserve Bank of India hints the maximum security is to be taken in respect of private loans. Against MSME loans the Bank isn’t always speculated to ask for 50% to 60% safety against the loans.
In truth, as in keeping with RBI provisioning norms, the safety has to be somewhere around 25 to 30%. This is a ballpark determine and no longer as in keeping with any precise rule. But in case you examine thru the RBI guidelines, recommendations and other literature which offers with development banking in India, the collateral security have to be around 25 to 30% of the mortgage amount.
In law, there may be in reality no difference between primary security and collateral security
They both stand on the same footing. So, while the Banker says Plant & Machinery is the number one security and the house is just collateral safety do no longer fall for that. The law makes no difference between the two. When an entrepreneur faces healing motion from the Banks, the first chunk of assets to be connected and out to public sale might be the residential house. The Industrial assets, the land, Plant & Machinery can lie there and literally decayed. What they need first is that house, that Bungalow. It’s in a great area. It is simpler to sell.
Business/Industry
Whenever your Industry or your business starts offevolved dealing with a credit crunch the first factor you have to take a look at is whether you’re the simplest one going through this crunch or whether similarly located marketers are also facing the problem. Now, why is that vital?
It isn’t always because of our standard Indian crab culture, to draw consolation from the fact that if my neighbor is in a problem, then it’s far adequate for me to have the trouble too. Rather, if other further positioned gamers also are dealing with a credit score crunch then it is viable to unite collectively to have a not unusual response and a not unusual representation to the Banks or authorities because the case may be.
Personal Account is an account different from your commercial enterprise
One mistake which marketers make is they by no means have wonderful debts. In different phrases, there’s no separation of business and personal. Always have sufficient cash to your personal account, especially when you are going thru a credit crunch.
When you operate say Rs. 5 lakhs out of your private account for a commercial enterprise fee, the underlying assumption is that you’ll replace it the minute you recoup it in the next week. The recouping by no means occurs. The cash is going into the commercial enterprise which has the economic digestive capacity of a hippopotamus. What goes down that yawning mouth, in no way comes up once more.
Finally, understand that it is not usually you who have failed, it is the business which has failed. Sometimes that is part of a natural enterprise cycle. The power to combat the warfare will simplest come if you have been absolutely honest. It is absolutely a brand new journey, where you may get a hazard to reduce the flab of the enterprise and rejuvenate it. It might also just be the begin of a top-notch new fulfillment!