SMEs hard hit by high credit costs

A survey by Assocham has found that nearly 25 per cent of small and medium enterprises have either closed their shutters or are struggling for survival due to expensive credit, non-availability of timely and adequate funds, increasing power shortages and delayed payments by large companies.

Payment delays by corporations raise the transaction cost of small and a medium enterprise (SMEs), which eventually bring these to the verge of sickness, pointed out the survey on “Spreading sickness in SME Sector”.

About 500 small units in different states  were surveyed. Over 70 per cent respondents said they do not have access to institutional credit to operate competitively, while 48 per cent complaint of lack of working capital.

Majority said banks insist for guarantee for loans and demand interest higher than the base rate. Around 92 per cent member’s said, frequent reason for sickness is bunching of ownership and management functions of these enterprises which are controlled by one or selected few people.

The survey also highlighted that at present 80 per cent of sick units windup as they seldom match the nursing benchmarks. Assocham recommended the need for an independent body to oversee the efforts of the government and banking sector to rehabilitate sick industries.