Investment is the most interesting as well as intricate part of any business. Being an expert in the chosen field of business and the capacity to deliver top quality goods can be rendered obsolete if investments are not handled cleverly. Some start from the scratch while others invest millions to expand an existing business. Those who start with meagre investment may move to a higher scale in no time whereas multi-million investments need not necessarily translate into multiplying of profit. Irrespective of the product's calibre and the demand, investments must be controlled by a smart mind, for the business to move safely.

As far as Indian business and economy is concerned the Small and Medium Enterprises (SME) sector plays an important role in the nation's economy by providing employment to 42 million and by creating 1 million job opportunities every year. The Small Industries Development Bank of India (SIDBI) aims to patronise more SMEs. It has applied to the Securities & Exchange Board of India (SEBI) to grant licence for helping unlisted companies. Due to this, SEBI has relaxed the norms for SMEs to enter the listings thus enabling them to receive finance. This helps the Indian SMEs, which face many challenges including poor marketing infrastructure, inability to access modernisation and lack of fund access.

The International Finance Corporation, which is a unit of World Bank, has facilitated 70 million dollars to four SME based funds in India. These funds would assist SMEs focused on capital goods, speciality chemicals, and wastewater management. 15 of the 70 million dollars are committed to information technology and health care. SMEs are also helped by ratings from SMERA*, which helps easier inflow of funds.

Current Business Scenario in India

Indians are not that bold in becoming entrepreneurs. As Arun Prabhudesai, CTO, Enhance Education, blogs in Trak, while the United States has 12% of its population as entrepreneurs, India has only 1%. The basic need of the Indian investor for financial security is considered the main reason behind this. This has been recognised by the government and the problem is sought to be solved by various attractive schemes that encourage budding entrepreneurs of the nation.

Speaking about the business scene in India, one should admit that the country has a significant economic influence on all the continents barring Antartica. Indian manpower and products are globally sought after. Banks are instructed to give quick and effective services for loans. Execution of loan is done under government supervision and this keeps small and medium business enterprises safe. We see Indian corporates expanding across the globe and foreign giants investing in India. Foreign companies investing in India are attracted by the easy availability of skilled labour and best production cost, while exporters from India bring in valuable foreign exchange.

Changing lifestyles and better spending power feeds success for many Indian businesses. Many SMES are now actively engaged in IT enabled Services (ITeS) running a host of businesses from matrimonial services to ticket bookings, selling books or delivering gifts and roses. According to Internet and Mobile Association of India's [IAMAI], the sectoral umbrella body, current e-commerce market in India is around $ 10 billion, while US e-commerce market is set to touch $ 200 billion in 2013, growing at 17 per cent. Despite all these efforts that business houses take, one should admit that there is still room to improve.

Indian Economic Conditions & Business Impacts

In the current situation, economic, legal, technological and, mainly, political factors have a big say in making a successful investment. The other factors, which have a big impact on a successful business, would include customers and competitors. These factors that determine local business are contagious because different aspects of national and global economy are sensitively interlinked. Collapse of one economic aspect in any strategic location of the globe is felt throughout the globe in no time.

While global companies choose India for effective and cost-effective production, Indian small and medium enterprises benefit by entering into partnerships with global companies. They seek international technology for their products or associate themselves with international brands. This adds to the Indian small industry's profit and strengthens the chances of future expansion.

During times of recession, Indian business experts are prepared to handle them diligently. Many of them strategically adapt themselves to tough financial situations. In fact, during the 2010 recession, Indian SMEs reportedly performed better than they would during normal situations. The average Indian investor keeps all options open and is always ready to safeguard himself from bitter consequences. In short, most of the Indian investors believe in calculated risks.

Loyalty and brand awareness are a serious issue in Indian business and one cannot afford to ignore complaints from customers. Therefore, having a strict vigil on manpower is equally important. Businesses invest on manpower for positive and faster results. So, you are expected to shell out a big amount of your finance in brand promotion and customer care. These secondary investments strengthen the roots of a business and help to face competition. However, lack of proper business plans and absence of good accounting results stumbles the entire business. Finance management becomes a key aspect of running any business, leave alone SMEs, and nothing helps like experience and in-depth knowledge in such situations.

Providers of Business Finance

When seeking external sources for investments, Indian SMEs adopt two types of approaches of which one is collateral based and the other is viability based. Availing finance is no more a difficult task for the budding entrepreneur in India, with numerous banks and financial organisations like SBI, ICICI and IDBI competing with each other in offering business loans. Depending on the situations and requirement, small and medium enterprises could seek either long-term investment or temporary working capital. Long-term capital is procured by going public and issuing shares and debentures. Those small and medium enterprises that go public are supported by CRISIL rating which speaks for the enterprise's reliability and reputation. Credit rating agencies in India like SMERA, CARE work with 35 banks and 19 financial institutions to help investors to know credit records of small industries. For short-term loans, banks and other external deposits would help small enterprises. Generally, small and medium enterprises in the manufacturing sector seek higher loans than those in the service sector.

Overdraft funding on business assets is a good option for both small and long term loans. Businesses with an annual turnover of Rs 90 lakh to Rs 45 crore could make the best use of this facility. One gets loans up to 75 per cent of the pledged property's value, which extends up to 15 years. The Government of India has commissioned the Small Industries Development Organisation (SIDO), to form policies and programs for small industries. The periodical census conducted by SIDO is very useful while drafting such programs.

Venture capitalists too play a very crucial role in the finance options of Indian small industries. Venture capital is conceptually different from traditional loans. They see early stage finance, expansion finance and acquisition finance in different perspectives and not the same. Venture capital is government controlled.

Venture capital is divided as Series A, B, C and so on. Series A has professional investors who are prepared to bear more risks. Thereafter from Series B and after, the willingness to take risk decreases with many investors grouping to share whatever results that might occur. Angel investors are rich individuals who started as entrepreneurs. They not only invest but also provide experience-based advice.

One can also find websites connecting small and medium businesses with appropriate investors. Such websites are commonly used in the United States, Europe and Australia, and are gaining momentum in India and South East Asia. Besides linking finance sources and business houses, they provide ideas on monitoring cash flow, choosing the right marketing strategy, dealing with productivity issues of manpower and prioritising key issues. They also support forums in their space where finance managers of various companies discuss and exchange experiences.

Role of the Indian Government

The Indian ministry for MSME has been offering collateral free Credit Guarantee Fund Trust for Small and Medium Enterprises, which is in short known as CGTMSE. This collateral free fund is available up to Rs 100 lakh through nationalised banks. The guarantee fee is 1.5 per cent of the loan and the annual service fee is 0.75 per cent. The Indian government has identified and prioritised certain areas such as textiles, food processing, information technology, leather, automobiles and pharmaceuticals, to name a few, to provide SME assistance. SME Summits are held in national levels and Indian delegates attend international SME summits to update themselves with the latest developments happening in the global SME scene.

The Indian government has carefully explored the different avenues of globalisation in the country, much to the investor's benefit. The government also helps small businesses in dealing with threats like domestic and international competition, lack of access to public offers, market fluctuation and ignorance of latest business and technological trends.

Small scale businesses in India are also assisted with government loans. The Indian government gives special support to small enterprises run by women and those led by the physically challenged. The government syndicates with banks to arrange loan for purchase of equipment and raw material besides supporting marketing initiatives. On a concluding note, small and medium enterprises must have patience and consistency in handling investments. The SMEs must interact as a community and see individual problems as common to all members. With such updated experiences, handling finance issues should become more simple. Ultimately, when the going seems to be tough, the tough entrepreneur optimistically gets going.

Footnote

* SME Rating Agency of India Limited (SMERA) is a third party rating agency exclusively set up for micro, small and medium enterprises (MSME) in India for ratings on credit worthiness. It provides ratings, which enable MSME units to raise bank loans at competitive rates of interest. The agency was founded in 2005 by Small Industries Development Bank of India (SIDBI), Dun & Bradstreet Information Services India Private Limited (D&B) and several leading banks in the country.