ARRANGING FINANCE
No MSME can take off without monetary support. This need for finance can be classified into
following types:
- Long and
medium term loans
- Short term
or working capital requirements
- Risk
Capital
- Seed
Capital/Marginal Money
- Bridge
loans
The financial assistance in India for MSME is available from a variety
of institutions. The important ones are
- SIDBI:
Small Industries Development Bank of India (refinance
and direct lending)
- SFCs: State
level Financial Corporation e.g. Delhi Financial
Corporation.
- NSIC:
National Small Industry Corporation.
- Small
Industry Development Corporations of various
states.
- Commercial/Co-operative Banks.
- DIC:
District Industry Centre.
Long and medium term loans are provided by State Financial Corporations,
SIDBI and State Industrial Development Corporations. Banks also finance
term loans. This type of financing is needed to fund purchase of land,
construction of factory building/shed and for purchase of machinery and
equipment. The term loans are secured against mortgage of assets such as
land, building, machines, equipment and other stocks.
The short term loans are required for working capital requirements, which
fund the purchase of raw material and consumable, payment of wages and
other immediate manufacturing and administrative expenses. Such loans are
generally available from commercial banks.
There is, however, a SINGLE WINDOW SCHEME, For SSI units. Under the
scheme, one agency, either the bank or the financial institution, funds
both the term loan and working capital requirements. This scheme applies
to all MSME projects with project cost upto Rs 50 Lakhs.
The working capital loan is generally secured against
- Pledging of
stocks, raw materials and finished goods
- Advances
against work-in-progress (WIP)
- Advance
against bills.
For loans from financial institutions and commercial banks a formal
application needs to be made. The details of documentation that need to be
provided with the loan application is shown here.
- Documentation for Loan Application
- Balance
Sheet and Profit Loss Statement for last three
consecutive years of firms held by promoters
- Income Tax
Assessment Certificates of Partners/Directors
- Proof of
Possession of Land/Building
- Architects
estimate for construction cost.
- Partnership
deed/Memorandum and Articles of Associations of
Company.
- Project
Report
- Budgetary
Quotations of Plant and Machinery
A sanction or rejection letter is issued by bank after its assessment of
the application. If one receives a sanction letter then applicants need to
indicate in writing their acceptance of terms and conditions laid down by
FI/Banks.
Subsequently loan is disbursed in trances linked to the phased
implementation of the project.
In today's environment one has
other choices apart from commercial banks and Government
owned financial institutions. These options include
venture capital funds and no-government finance
companies.
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