This July 2010 issue of Dare has a set of insightful reports on the state of SME lending and experiences of some of the SME in raising or failing in raising loans
One of the first advices I had got on financing a business was this: "Never raise equity investment for working capital."
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This is so simple and universally accepted that most financial advisers have forgotten it. And there lies the tragedy. Today we see that it is common in the SME microcosm to raise a loan based on a project report and using it for other purposes. Banks loathe this as their repayment assumptions do not hold good and they never get any insight on how the money is being utilized.
As a result institutional lending has developed laborious and long-winding processes and checks and balances and moreover a system of securing their loans. Call it throwing the baby with the bathwater, but such universal lending policies harm the good SMEs more than stopping the bad SMEs. Not to mention, the micro entrepreneurs are crushed under such lending regimes.
The government and the institutions have seen their folly and are racing each other in suggesting and promulgating models that will help SMEs raise loans. Collateral-free loans is the new war cry of the lending institutions. The world over there has been a quest for a perfect credit guarantee model right from early '80s. Only a handful of countries, led by the South Korean ones, seem to have found a reasonably effective framework.
One lesson to carry out from this issue is that there is no easy route to a successful loan. The lending agency is taking a big risk by betting on your business and hence has to take adequate measures to ensure recovery. No one can blame the lending institutions for it.
When we set out to do a special issue on "How to raise business loans," we realised that merely listing a set of dos and don'ts are not what our readers would be interested in. Every rookie businessman knows and understands how to raise business loans and the labor involved in it. What we have come up with is a set of insightful reports on the state of SME lending and experiences of some of the SME in raising or failing in raising loans. Of course, we also have a section where we give you some practical tips. By understanding the banking processes better, we hope to see SMEs coming up with better bankable projects.
Hope you will enjoy the special report as much as we did in putting it together.
Prashanth Hebbar
Interact with me on Twitter @phebbar
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