Question

Long answer type questions.

“Non-availability of funds and raw material is the root cause of sickness in small business” Explain validity of the statement.

Answer 1

The Small-scale industries (SSIs) have always been facing the problem of inadequate finance and credit. This is partly due to the scarcity of capital with the entrepreneurs and partly due to lack of assets (for collateral/mortgage purpose) to obtain loans from banks. As a result, these businesses have to rely on the local financial resources and money lenders who charge high rates of interest. The cost of borrowing is so high that the small-scale industries are unable to obtain loans in times of adversity. This leads to financial instability in business. Similarly, due to inadequate finance and credit, SSIs face a shortage of funds for procuring raw materials and for carrying out their day-to-day business activities. This affects the profits of SSIs, thereby causing sickness. Hence, it is clear that the lack of credit facility and non-availability of funds make small businesses sick.