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Pitfalls of the SME World : Business Banking Can Be Tough

It is not an easy thing to start up your own business, especially if it is a small or medium sized enterprise. The problem while launching an SME is that they do not have the power of huge capital behind them. Funding is extremely crucial in the budding stage of any business. Luckily, with an array of business banking services – from simple deposit and lending facilities to specialized cash management facilities – SMEs have beneficial tools to reach their business goals.

Know Your Expenses Beforehand

To ask for money, you should first figure out how much money you need. To figure out how much money you need, you need to know what are the different things you will be spending it on. Expenses like office rent, salaries, number of hires and advertising expenses are all to be counted.

 

Don’t Bank on Just One Investor  

If you want to make sure your business bank account doesn’t get empty, do not rely on any single investor in the beginning. Investors can be very unreliable, especially in the early stages of a business. The main reason behind that is if the investors don’t see return on their investment from the start, they lose out interest soon enough. Relying on more than one investor in the early phase is crucial, if you want your business to move past stage one.

Delays in Estimation will be Fatal

SMEs are not already established businesses, nor do they have a guarantee of a massive capital. So, it is difficult to gain a line of credit from vendors and businesses you plan to bank upon. Estimating your funds wrongly or late can be fatal. Getting loans approved and doing all the paperwork takes a lot of time, so you should know all your funding requirements. Estimating the funding higher than needed is still better than underestimating it.

CGMSE Scheme is for SMEs Specifically

Look into the CGMSE scheme if you are setting up a new SME. This government scheme is specifically designed to help SMEs with guaranteed credit facility. If for unbeknownst reasons you are unable to make good on your payments to your investors, the government will back you up. Under the CGMSE scheme, the government guarantees coverage of up to INR 1 Cr without any collateral needed. However, do check your eligibility beforehand.

Now that you know the things that you need to be careful about, ensure you keep these factors in mind, when setting up your enterprise.

 

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