DFGKJ

1. SMALL MEDIUM BUSINESS & ENTREPRENEURSHIP
Project report on
Entrepreneurship & Small, Medium Enterprises
Submitted To Submitted By
Ms. Ishu Saini. Ramandeep kaur
190590098 (BBA VI sem)
Punjab Institute Of Technology, Rajpura affiliated with MRSPTU Bathinda

2. Declaration
I the undersigned Raman deep Kaur the work embodied in this project Work titled Entrepreneurship &
Small Medium Enterprises my own contribution to the research work carried out under the guidance of
Ms. Ishu Saini is a result of my own research work and has not been Previously submitted to any other
University for any other Degree/Diploma.
Wherever reference has been made to previous works of others, it has been clearly indicated as such and
included in the bibliography. I, hereby further declare that all information of this document has been
Obtained and presented in accordance with academic rules and ethical Conduct.
Raman deep Kaur
Roll no 190590098

3. Acknowledgement
To list who all have helped me is difficult because they are so numerous and the
depth is so enormous.
I would like to acknowledge the following as being idealistic channels and fresh
dimensions in the completion of this project.
 I take this opportunity to thank the MRSPTU, Bathinda for giving me
chance to do this project.
 I would like to thank Director sir of Punjab Institute of Technology for
providing the necessary facilities required for completion of this project.
 I take this opportunity to thank my teachers for her moral supportand
guidance.
 I would also like to express my sincere gratitude towards my project guide
 Mr. Vikas Gupta and Ms. Ishu Saini whose guidance and care made the
project successful.
 I would like to thank my College Library, for having provided various
books and magazines related to my project.
 Lastly, I would like to thank each and every personwho directly or
indirectly helped me in the completion of the project especially my parents
and Peers who supported me throughout my project.

4. OBJECTIVE
1. Understand the word entrepreneurship & entrepreneur
2. Understand the conceptof SMEs
3. Know the distinction between Micro, Small and Medium Enterprises
4. Understand the characteristics and significance of Small and Medium
Enterprises (SMEs)
5. Understand the contributions/role of SMEs in the Economic Development
6. Explain the steps for starting Small scale industry.

5. S. no
Topic
Page no
1.
Introduction , meaning and
importance of entrepreneurship 6 - 9
2.
Entrepreneur and
entrepreneurship
And characteristics of
Entrepreneur
10 - 14
3.
Factor influencing
entrepreneurship, types of
entrepreneurship, theories of
entrepreneurship
14 - 26
4.
Small medium enterprises,
introduction, definition,
characteristics & significance of
SME
27 - 32
5.
Contribution/ role of SME in
economic development 32 - 35
6.
Small and medium scale
enterprises in Indian economy,
factor influencing small medium
scale enterprises
35 - 37
7.
Industrial policies and strategies
related to Small and Medium
scale enterprises (SME’s) , steps
for starting Small scale industry
37 - 41
8.
SME funding and sources of
finance of SME’s 42 - 53
9.
Top 10 Indian entrepreneurs
54 - 56
10.
No.1 Entrepreneur of India
List of Mukesh Ambani
companies
57 - 66

6. A world of opportunity
Introduction
Everyone is aware of the term ‘entrepreneurship’ which refers to a process by
which individuals launch and manage their business and industrial enterprises.
Entrepreneurs are the ones who risk and invest their own capital into the business
and industrial-ventures.
The word ‘entrepreneur’ immediately conjures up images of business tycoons like
L.N. Mittal or Bill Gates. While these rich, famous and successful individuals can
be inspirational for some, most of us would find it difficult to associate our own
lives, personalities or abilities with them. But the fact is that virtually everybody is
entrepreneurial in some part of his or her life. Entrepreneurial in terms of self-
development (an athlete constantly practicing to improve his/ her performance and
stamina), in terms of self-decision making (a man deciding not to marry and
devoting the rest of his life in the service of God), in terms of creativity (a
housewife using waste material for making a piece of art), risk-taking (a teenage
boy trying bungee jumping).
Hence, anyone who exhibits the characteristics of self-development, creativity,
self-decision making and risk-taking can be rightly called as a person with
entrepreneurial traits. When these traits are exhibited by a person running a
business he can rightly be called an entrepreneur. The reverse is also true – a
businessman who does not take risk , or does not aim for self – development ,is not
creative and one who cannot make a decision on his own, cannot be rightly called
as an entrepreneur. And in the present competitive world, the latter is thrown out of
the business by the market forces over a period of time. Despite its current
prominence, entrepreneurship still remains a rather vague concept. According to
the dictionary the word “Entrepreneur” can be defined as “one who reorganizes
and manages only enterprise specially involving high risk”. If taken literally, this
definition seems fine, but it is quite incomplete. Researchers have shown that
entrepreneurs are not necessarily high risk-taker’s. However, a clever entrepreneur
performs to reduce risk and increase the likelihood of success. The definition
nowhere mentions anything about opportunities or resources allocated to the
success. The only point mentioned in the definition is regarding high risk, which
might not even be necessary to be successful.

7. Meaning of Entrepreneurship
The word ‘entrepreneur’ immediately conjures up images of business tycoons like
L.N. Mittal or Bill Gates. While these rich, famous and successful individuals can
be inspirational for some, most of us would find it difficult to associate our own
lives, personalities or abilities with them. But the fact is that virtually everybody is
entrepreneurial in some part of his or her lives. Entrepreneurial in terms of self-
development (an athlete constantly practicing to improve his/ her performance and
stamina), in terms of self-decision making (a man deciding not to marry and
devoting the rest of his life in the service of God), in terms of creativity (a
housewife using waste material for making a piece of art), risk-taking (a teenage
boy trying bungee jumping).
Hence, anyone who exhibits the characteristics of self-development, creativity,
self-decision making and risk-taking can be rightly called as a person with
entrepreneurial traits. When these traits are exhibited by a person running a
business he can rightly be called an entrepreneur. The Reverse is also true – a
businessman who does not take risks, or does not aim for self-development, is not
creative and one who cannot make a decision on his own, cannot be rightly called
as an Entrepreneur. And in the present competitive world, the latter is thrown out
of the business by the market forces over a period of time.
Entrepreneurship is the process of creating something new, with value, by devoting
the necessary time and effort, assuming the accompanying financial, psychic, and
social risks, and receiving the resulting rewards of monetary and personal
satisfaction and independence.
Entrepreneurship is often viewed as a function, which involves the exploitation of
opportunities, which exist within a market. Such exploitation is most commonly
associated with the direction and/or combination of productive inputs.
Entrepreneurs usually are considered to bear risk while pursuing opportunities, and
often are associated with creative and innovative actions. In addition, entrepreneurs

8. undertake a managerial role in their activities, but routine management of an
ongoing operation is not considered to be entrepreneurship. In this sense,
entrepreneurial activity is fleeting. An individual may perform an entrepreneurial
function in creating an organization, but later is relegated to the role of managing
it without performing an entrepreneurial role. In this sense, many small-business
owners would not be considered to be entrepreneurs. Finally, individuals within
organizations (i.e. non-founders) can be classified as entrepreneurs since they
pursue the exploitation of opportunities.
Entrepreneurship is the tendency of a person to organize the business of his own
and to run it profitably, using all the qualities of leadership, decisions making and
managerial caliber etc. The term “entrepreneur” is often used interchangeably with
“entrepreneurship”. Entrepreneurship is a role played by or the task performed by
the entrepreneur. The central task of the entrepreneur is to take moderate risk and
invest money to earn profits by exploiting an opportunity. For this he must possess
far-sightedness to perceive an opportunity so that he can exploit it well in time.
Although an entrepreneur has to perform diverse functions yet he must manifest
many qualities in himself to be a good entrepreneur.
Importance of Entrepreneurship
Prosperity of a nation depends on the development of its economy. Every nation
has a responsibility to ensure economic development to improve the living
standards of the people, eliminate poverty and backwardness. The process of
economic development involves improvement in Gross National Product and
depends on the utilization of physical natural resources by the human resources to
realize the productive potential of the nation. It requires increase in production and
level of consumption. In a labor abundant but capital short economy like India,
there is limitation to the government in directly involving itself in increasing
productivity considering the severe budgetary constraint for funds and the pressing
need for higher investment in the frontiers of social development.
Hence, the people have to come forward to engage themselves in productive
activities by starting their own industrial unit’s livelihood. When more and more
persons come forward to start their own enterprises, however small it may be, and

9. run the enterprise, efficiently and effectively, the productivity of the nation will
automatically improve. The government implements a number of programmes to
induce self-employment and to develop entrepreneurship in the country. Hence,
development of entrepreneurship and entrepreneur are sine-qua-non for the
economic prosperity of the nation. Following are the reasons why entrepreneurship
holds vital role in an economy:
1. Creates wealth for nation and for individuals as well: All individuals
who search business opportunities usually, create wealth by entering into
entrepreneurship. The wealth created by the same play a considerable role in
the development of nation. The business as well as the entrepreneur
contributes in some or other way to the economy, may be in the form of
products or services or boosting the GDP rates or tax contributions. Their
ideas, thoughts, and inventions are also a great help to the nation.
2. Provides employment to huge mass of people: People often hold a view
that all those who do not get employed anywhere jump into
entrepreneurship, a real contrast to this is that 76% of establishments of new
business in the year 2003 were due to an aspiration to chase openings. This
emphasizes the fact that entrepreneurship is not at all an encumbrance to an
economy. What more is that approximately 34 million of fresh employment
opportunities were created by entrepreneurs from the period of 1980. This
data makes it clear that entrepreneurship heads nation towards better
opportunities, which is a significant input to an economy.
3. Contributed towards research and development system: Almost 2-3% of
all innovations are due to the entrepreneurs. Without the boom of inventions
the world would have been a much dry place to live in. Inventions provide
an easier way of getting things done through better and standardized
technology.
4. It is a challenging opportunity for the people: Although entrepreneurship
is a challenging task but in most of the cases the rewards it gives are much
more than what one anticipates. It does not only reward an entrepreneur at
financial levels but also on individual level. It provides self-satisfaction to
the entrepreneur.

10. 5. Entrepreneurship provides self-sufficiency: The entrepreneur not only
become self-sufficient but also provide great standards of living to its
employees. It provides opportunity to a number of people working in the
organization. The basic factors which become a cause of happiness may be
liberty, monetary rewards, and the feeling of contentment that one gets after
doing the job. Therefore the contribution of entrepreneurs makes the
economy an improved place to live in.
6. Sky-scraping heights of apparent prospect: The individual gets maximum
scope for growth and opportunity if he enters into entrepreneurship. He not
only earns, the right term would be he learns while he earns. This is a real
motivating factor for any entrepreneur as the knowledge and skills he
develops while owning his enterprise are his assets for life time which
usually, lacks when a person is under employment. The individual goes
through a grooming process when he becomes an entrepreneur. In this way it
not only benefits him but also the economy as a whole.
Concepts: Entrepreneur and Entrepreneurship
The concept of entrepreneurship has evolved for a long time but its popularity
has not gained so much for a long while. But through resurrection, the concept
has attained so much popularity that after its observation, a firm idea has been
grown up about its sudden discovery. Entrepreneurship is one of the four
mainstream economic factors, viz., land, labor, capital and entrepreneurship.
The word itself has been derived from the French word entrepreneur in the 17th
century, which means the person who undertakes the risk of new enterprise.
The persons would undertake the work of a contractor and bear the risk of profit
or loss. Early references to the entrepreneur can be traced out in the 14th century
when the term indicated about tax contractors who paid a fixed sum of money
to a government for obtaining the license to collect taxes in their region.

11. Thereafter, entrepreneurship was a common topic in economic essays in the 18th
and 19th centuries. The early French, British and Austrian economists were
notable in this respect and wrote impressively about entrepreneurs as the
changing agent of progressive economies. A French economist, Richard
Cantillon was the first man to be credited with giving the concept of
entrepreneurship a central role in economics as described in his publication in
1755. In the opinion of Cantillon, entrepreneurs consciously make decisions
about resource allocation. He Identified the entrepreneurs as the agents who
purchase means of production in order to combine them to produce a product to
sell at price that are uncertain at the moment at which he commits himself to his
cost.
Adam Smith interpreted the work “enterpriser” in his famous book, Wealth of
Nation in 1776 as an individual undertaking the formation of an organization
for commercial purposes. In his view, Entrepreneurs reacted to economic
change, thereby becoming the economic agents who transformed demand into
supply. A few decades later from Cantillon, the concept of entrepreneurship has
gained transparency. Another French economist, J.B. Say in his book, A
Treatise on Political Economy originally published in 1803 identified an
entrepreneur as a person who possessed certain arts and skills of creating new
economic enterprises and who had also an exceptional insight into society’s
needs and was able to satisfy them. In 1848, the British economist, John Stuart
Mill analyzed the necessity of entrepreneurship in private sector.
Max Weber (1864-1920), a German sociologist emphasized his opinion that
creative and entrepreneurial initiatives are generated by adopting exogenous
beliefs which, in turn, produce three intense efforts in occupational goals and
accumulation of productive assets leading to manufacture of goods and
services. In his opinion entrepreneurs are influenced by a particular social
condition in which they live and society itself shapes the personality of the
individuals as entrepreneurs.
In recent times, as regards entrepreneurial aspect, a few psychological theories
have been developed by a number of famous psychologists, like McClelland,
Hagen and Kunkel and some sociological theories developed by Thomas
Cochran and Frank Young. McClelland stressed the importance of achievement

12. motivation assisting to expose the personality of entrepreneurs and leading to
economic and social development. Hagen identified the emergence of a group
of creative individual resulting on withdrawal of status in society. Thus it led to
the development of entrepreneurs and taking off the process of economic
development. Kunkel conceived that the behavioral pattern of individuals is the
significant matter for the development. Such a behavioral pattern can be
directed by external stimulus. In their theories, Cochran and Young did not lay
so much importance of the society in shaping the personality of the
entrepreneurs and they suggested that certain factors, viz, agricultural values,
social sanctions, role expectation and inter-group relations in society are
responsible for emergence of entrepreneurs.
Till the nineteenth century various concepts of entrepreneurship had emerged.
Since then in respect of managing the enterprise, the task of management has
been recognized as an important matter. For management, the responsibility of
entrepreneurs has been delegated to the managers. Now the term
entrepreneurship cannot be clearly defined or the entrepreneurs cannot be
clearly identified as a particular person. According to modern management
experts, entrepreneurship can be considered as a behavior encompassing an
individual’s pursuit of opportunity irrespective of the resources controlled.
Characteristics of an Entrepreneur
Entrepreneurs possessthe following vital characteristics:
1. An especially skillful person: The entrepreneur is recognized as a person
having a special skill and at the same time a person providing others for
motivation. He may be either a single individual or an individual in a group.
Whatever he may be, he possesses that special skill which is not generally
found in common man .
2. An innovator: He is rightly known as an innovator who engages himself to
innovate new varieties of products, explores new market horizons, and

13. introduces new techniques of production and methods of reconstruction of
industries. According to Schumpeter, the main characteristic of an
entrepreneur is to innovate something. Through such innovation, the
execution and effective use of a creative idea are ensured. Its success brings
for commercial achievement and new horizon of economy emerges.
3. Providing completeness to the factors of production: An entrepreneur
procures necessary resources from various sources for the purpose of
production and by utilizing them he provides completeness to the factors of
production. Moreover, he endeavors to make contact with various markets
for his products. He is a risk-taker and functions as a coordinator.
4. Decision-making person: The entrepreneur is such a person who is
endowed with a power to make a proper decision as regards the
establishment of a business, its management, and procurement of different
factors, methods of distribution and coordination of various scarce resources.
Since he has a strong power of decision-making, he can take decisions on
various maters rapidly. His achievement largely depends on the ability of his
decision making.
5. A man of creative personality: As the term implies, he is known as an
employer who makes optimum utilization of economic resources and thus
carries on productive activities. He has a quality of creating something new
and as such he is a person of creative personality. For this, he is known as a
creative innovator. He creates new ideas, nurtures them in the light of his
own experience, knowledge and intellect. Through all such activities, his
creative personality and mentality are exposed.
6. basic plan-maker: An entrepreneur is the owner, employer, producer,
market-creator, decision-maker, risk-taker, coordinator, and user of market
information, creative individual and innovator. For this, he is regarded as a
pioneer of economic development.

14. 7. pioneer of economic development: An entrepreneur is the owner,
employer, producer, market-creator, decision-maker, risk-taker, coordinator,
and user of market information, creative individual and innovator.
8. leader: He provides proper motivation to his workers by means of
leadership so that the workers can give their best efforts to the interest of the
organisation.
9. of wealth: The entrepreneur uses various resources for running his products
or services are produced. Hence, the entrepreneur creates his personal wealth
and at the same time he helps to increase social wealth, because new wealth
is created due to increase in demand for product or services. As such,
creation of wealth is one of the basic features of an entrepreneur.
10. Self-confident and ambitious: In the opinion of John Hornaday, one of the
important features of an entrepreneur is that he should be self-confident as
well as ambitious. Self confidence is regarded as one of the remarkable
characteristic features for his success. This self-confidence leads him to face
any situation boldly. Self-confidence relates to harmonize between word and
work.
Factors Influencing Entrepreneurship
Following are the various factors that influence entrepreneurship:
1. Education : There is a need to have drastic changes in educational pattern
to make it more relevant to the needs of the time, economic, social and
political environment. More and more young minds should be trained to
create avenues for self-employment. Designing a suitable programme of
entrepreneurial education and introduction of entrepreneurship, a subject for
study even at the school level to make the young minds realize the
importance of entrepreneurship are the need of the hour.

15. 2. Legal: The law must protect the weak till the time they need it.
Entrepreneurs in small sectors have limited resources and cannot compete
with large-scale manufactures. Reservation of certain items of products for
exclusive production in small sector is one such legal measure to protect the
interests for small-scale entrepreneurs.
3. Infrastructure: Land and factory sheds at concessional rates, adequate
supply of power, water, coal and other sources of energy, transport facilities,
availability of wagons, supply of raw materials and other physical facilities
should be provided by the Government to facilitate setting up of new
enterprise.
4. Institutional: Entrepreneurs need advice on the lines of manufacture, which
may be suitable, sources of raw materials, finance and other facilities like
technical know-how, tools and equipment etc. The entrepreneur also need to
know about the opportunities and threats to their business, government policies,
developments in international economic scene, technological changes, etc.
Institutions have to be established to keep the entrepreneurs informed about all
these matters of their interest and also to enable them to present their problems
before the authorities in the government.
5. Financial: The needs for fixed and working capital should be adequately
needed; if the new enterprises are to serve and grow. The lack of financial
resources deters potential entrepreneurs to start new ventures. The problems
become more acute in the capital short developing countries where the business
and industry how to put up with underdeveloped capital market. The
governments, in these countries should see that the capital market is developed
with newer and innovative capital market instruments and strong financial
institutions.
6. Procedural: The bureaucratic procedure of government offices, industries
departments and financial institutions is a great hindrance to the growth of new
enterprises. The entrepreneurs have to run to different jobs; and complete a

16. number of offices in government for different jobs; and complete a number of
formalities prescribe) by several laws, rules and regulations. It would be better
for the potential and existing entrepreneur, if the number of procedural and
legal restrictions of the entrepreneurs is reduced and an administrative
mechanism is developed to look after all the needs and requirement the
entrepreneurs.
7. Communicational: The information gap pushes many entrepreneurial ventures
towards extinction. Unless an entrepreneur known about the market potentials,
competition in the market, technological and other developments, the
entrepreneurs is not likely to succeed in the venture. The government
departments, organizations of entrepreneurs, financial institutions and business
consultants have a role to play in this regard. It is very important for an
entrepreneur to succeed.
8. Information technology and communication: Modern technology such as
Information technology has entered every walk of human life. Faster mode
of communication through email, networking, web technologies have
revolutionized the industrial scene with the fast and up to date information at
different levels of management, the management processes also have gone
considerable changes in decision making and implementation.
9. Rapid Changes: IT and communication revolution, the networking within
the industry and outside the industry has increased many fold. The exchange
of information and availability of resources is bringing changes in the
industry faster than ever before in the history.
10. Large size: There is considerable increase in automation and introduction of
computerized production and process controls in industries. The demand for
the goods and the geographical reach is bringing large size industries as well
as services. The size gets advantage of economies of scale in manufacturing
marketing.

17. 11. R&D Technology: Companies today are investing lots of money in R&D
activities to develop new products and new processes to compete in the
global market.
12. Stakeholders: The stakeholders of today are more knowledgeable and get
up to date information about the industry developments as well as the
progress of particular industries were interested. Thus there is awareness by
the stakeholder, which gives him closer involvement than ever before.
13. Globalization: Now business operates in an open environment, as there is
no geographical boundaries exist. So competition has become very intense.
To survive in today’s market company has to be very competitive in terms of
quality, price and delivery.
Types of Entrepreneurship
There are four types of entrepreneurship

19. 1. Business Entrepreneurship
When you don’t have the resources of a big business and have to be more
conservative in your accounting, your entrepreneurship has to be more
dependent on good, old-fashioned elbow grease.
In small business entrepreneurship, innovation is typically more modest and
based on a new twist on currently available products and services -- or simply
on doing a job well -- while profits are used to support the company’s family
rather than being poured into more expansion. These small businesses are often
made up of family members and friends. Local restaurants, dry cleaners, and
mom-and-pop stores are good examples.
Real-world example: Chances are you don’t have to go far to find a good
example of small business entrepreneurship. Many local businesses represent a
family that decided to put its hard-earned cash into launching a store to serve
the surrounding community. Restaurants are typical examples, with hard-
working families serving delicious meals day in and day out. Many fail, some
succeed, and a few others go on to expand to additional locations. Some even
create regional empires.

20. 2. Scalable start – up Entrepreneurship
As defined by Steve Blank, the father of the lean startup concept, scalable
startup business entrepreneurship begins with a founder’s belief that they can
change the world. Venture capitalists often swoop in to fund these sorts of startups
in the hope of landing massive returns. They then hire highly skilled and educated
professionals to run them, seeking to address market holes or disrupt entire
industries.
Real-world example: Uber started as an idea to revolutionize the taxi industry
and, after attracting investment, the company exploded and grabbed massive
market share in a very short time. Critics have since questioned the company’s
business practices – did Uber skirt taxi regulations and pay its “independent
contractor” drivers artificially low wages to create an unsustainable business model
in order to grab an early foothold in a growing market? But no one can argue that
the company hasn’t dramatically changed how people get around.

21. 3. Large company Entrepreneurship
One major disadvantage for a business when it gets larger is that it starts to move
slowly. As a result, big businesses often try to jump-start entrepreneurship by
snatching up a smaller company and delegating innovation to the new acquisition.
The larger company may leverage limited product or service life cycles and have
experienced professionals take the reins of new projects. Massive tech firms such
as Google and Microsoft often do this by buying out a small developer with
promising technology as part of its long-term focus.
Real-world example: After being partners for years, Disney finally purchased
animation studio Pixar in 2006. Rather than create its own studio to compete with
Pixar, Disney decided it would simply buy the up-and-coming studio behind Toy
Story and other hit movies. It has proven to be quite the lucrative arrangement for
Disney, which has cashed in on other blockbuster successes from Pixar since the
acquisition, including WALL-E, Coco, Up, Brave, and sequels to ToyStory.
4. Social Entrepreneurship
A socially conscious business is focused on solving social problems, such as access
to food, money, and education. The stated goal of these companies is to make the
world better (although, for most, the ultimate purpose is still to make money). Such
companies develop products and services with the goal of achieving these lofty
goals. This model sometimes describes nonprofit organizations as well.
Real-world example: Seventh Generation, which sells eco-friendly cleaning and
personal care products, was launched in 1988 in response to growing societal
concerns about the environment since many household products of the day
included harsh chemicals. The firm donates 10% of pre-tax profits to community-
and environment-focused nonprofits and businesses. Despite lower profit margins,

22. the company reportedly managed to pull in $200 million in 2015 – proving that
creating a responsible corporate image can also make money.

23. Theories of entrepreneurship
There are five main theories of entrepreneurship
1. Innovation theory ( Given by J A Schumpeter )
2. An economic theory ( Mark Casson)
3. Sociology theory ( JeanBaptiste )
4. Psychological theory ( David MC Clellend )
5. Leadership theory ( Hoselitz )

24. 1. INNOVATION
THEORY
( J A
SCHUMPETER)
3. SOCIOLOGY THEORY
( JEAN BAPTISTE)
2. AN ECONOMIC
THEORY
( MARK CASSON)
4. PSYCHOLOGY THEORY
(MC CLELLEND)
5. LEADERSHIP THEORY
( HOSELITZ)

25. 1. INNOVATION THEORY
This theory was given by J A Schumpeter. In this theory , J A Schumpeter
States that and entrepreneur is basically an innovator an inventor is one who
Identifies and introduce new combinations.
LIMITATIONS WHICH THIS THEORYFACED ARE
 Exclude individuals who operate traditional businesses .
 entrepreneurs be entitled to the most vigorous Type of enterprise.
 It ignores the risk taking aspect.
2. AN ECONOMIC THEORY
This theory was given by Mark Casson in his book THE ENTREPRENEUR , am
economic theory. According to Mark Casson, for entrepreneurship arise from the
need to change and the supply of entrepreneurship is limited. Entrepreneurship
complete depends on economic conditions and it takes growth when economic
conditions are favourable . The main motivators are economic incentives like
taxation policy, industrial policy, sources of finance and raw material ,
infrastructure availability etc. .
He Described four qualities of an entrepreneur in his theory i.e.
 Good decision making ( judgement decisions)
 Co – ordination of insufficient resources
 Self motivation
 Natural imagination

26. 3. SOCIOLOGY THEORY
In this theory, Entrepreneurship depends on Social factors. The entrepreneurial
activities are studied from social status hierarchy and values. It is likely to get a
raise in a certain social culture. The behaviour of an entrepreneur in society is
influenced by:
 Social political environment factors
 social attitudes
 society values and beliefs
According to Jean Baptiste ( Am aristocratic industrialists) , the factors of
production like land , labor , capital , and entrepreneurship combines to
producea product.
4. PSYCHOLOGICAL THEORY
This theory developed by David MC Clellend as an achievement motivation theory
. Doing innovative things in efficient manner and decision making under
uncertainty are more likely to become a successful entrepreneur . MC Clellend
suggested that there are three needs for personal acquirements and that is the
achievement , affiliation, and power .
It is possible when the existing entrepreneur improves their performance through
imparting proper training and education. As per entrepreneurial personality
emphasized by economic and social development . Am entrepreneur tries to find
internal factors like human values and motives that lead to making opportunities ,
to grab advantageous trade conditions.

27. 5. LEADERSHIP THEORY
This theory propounded by Hoselitz , entrepreneurship is a function of managerial
and leadership skills . An individual must have the ability to lead and manage his
group. In business , there are normally three types of leadership follows – merchant
money lenders , entrepreneur, and managers.
Conclusion
Every theorist has viewed the entrepreneur and entrepreneurship on the basis of
their perception. Theories of entrepreneurship are created into economical , social
logical, psychological, cultural, political and managerial threads . An entrepreneur
is the risk taker and works under uncertainty.
SMALL , MEDIUM ENTERPRISES
Introduction
Small scale sector occupies an important position in the industrial structure of our
country. In a Country like India, wherein on one hand there is the acute problem of
unemployment and on the other hand scarcity of resources, therefore in such
circumstances only the small scale sector is best suited to cater the needs of new
entrepreneurs. Small and medium enterprises (SMEs)play an important role in
creation of employment with low capital investment. Thus small and Medium
enterprises (SMEs) play an important role in the development of the economy of
the nation. The small-scale sector contributes around 40 percent to the total exports
of the country therefore it plays an important role in the development of Indian
economy. In terms of value added it contributes to about 40 percent of the
manufacturing sector and 80 percent of industrial production is from this sector.

28. The role of small and medium enterprises (SMEs)is one of the important features
of the planned economic development of India. In India this sector has been
assigned with the significant role in the industrialization and economic
development of the country, as an effective tool in subserving the national
objective of growth with justice. Its crucial role has been increasingly recognized
as a solution for the country‘s problems of scarce capital, wide spread
unemployment, regional imbalance of industrial development, inequitable
distribution of National Income etc.
Definition of Small and Medium Enterprises
The definition of small and medium enterprises (SMEs) is defined in different
ways depending on country‘s pattern and stage of development, policy aims and
administration set up. An SME can be defined as a privately owned and operated
business unit that is composed of a small number of employees and has relatively
low turnover. In the words of P. Neck, “Small enterprises are those in which the
management lies in the hands of one or two people who are responsible for the
major decisions.”
This definition draws a critical management feature of SMEs in which one or two
people bear the responsibility of many functions, which is generally distributed
among several people in a large-scale enterprise. This characteristic is evident in
many SMEs. SME is defined differently in different countries depending on their
economies, for example, an SSE in the US may be a large scale enterprise in India.
SMEs can be classified on the basis of number of employees, capital invested,
turnover, and type of business. For example, in African nations, a business unit is
considered to be an SME, if it employs 5 to 50 people. On the other hand, in Asian
countries, it is between 30 and 100, whereas in the US it is any number less than
500. SSEs play a significant role in creating employment, utilizing resources,
generating income, which, in turn, helps in the economic development of a
country.
In India, Small and Medium Scale Enterprises (SMEs) or small-scale sector lies
between the organized sector represented by large-scale industries and the
unorganized sector of widely dispersed cottage industries. Small-scale sector is
defined in terms of certain criteria, such as investment ceiling on the original value

29. of the installed plant and machinery, number of workers employed, use of power,
plant capacity, and volume of output. The most acceptable criterion of defining the
small-scale sector in India is the ceilings on investment in plant and machinery.
The small-scale sector includes the following undertakings or enterprises:
 Small-Scale Industrial Undertaking: Refers to an industrial undertaking in
which the investment in fixed assets, such as plant and machinery (whether
held on ownership terms, on lease, or by hire-purchase) does not exceed Rs.
1 crore. If the industrial undertaking exports 30% of its annual production by
the end of third year from the date of its commencing production, then the
limit of investment in fixed assets in plant and machinery is Rs. 5 crores.
 Ancillary Industrial Undertaking: Refers to an industrial undertaking that
deals with the production of spare parts, components, sub-assemblies, and
tooling, or the rendering of services. An ancillary industrial undertaking
needs to provide at least 50% of its products and services to other
undertaking. It is important to note that the investment of an ancillary
industrial undertaking in fixed assets should not exceed Rs. 1 crore.
 Micro or Tiny Enterprise: Refers to an enterprise in which investment
limit in plant and machinery is Rs. 25 lakhs irrespective of location of the
unit.
Distinguishing between Micro, Small, and Medium Enterprises
In India, enterprises are broadly grouped into two categories, namely,
manufacturing enterprises
and service enterprises. These two categories of enterprises are explained as
follows:

30. Manufacturing Enterprises: Refer to enterprises engaged in the production
of goods,
such as textiles, coir items, chemicals, and beauty products
Service Enterprises: Refer to the enterprises involved in providing or
rendering of
 services, such as tailoring, dry cleaning, and desktop publishing
According to the provision of Micro, Small & Medium Enterprises
Development (MSMED) Act,
2006,the aforementioned two categories are further classified into MSMEs
on the basis of amount invested on plant and machinery (in the
manufacturing sector) and on equipment (in the service sector). The
difference between MSMEs on the basis of investment ceilings are given in
Table-1:

31. Enterprises Investment in plant &
machinary in
manufacturing sector
Investment in
equipment in service
sector
Micro enterprises Does not exceed Rs. 25
lakh
Does not exceed Rs. 10
lakh
Small enterprises More than Rs. 25 lakh,
but does not exceed rs.5
crore
More than rs.10 lakh,
but does not exceed Rs.
2 crore
Medium enterprises More than Rs. 5 crore,
but does not exceed Rs.
10 crore
More than Rs. 2 crore,
but does not exceed rs.5
crore
Characteristicsand Significanceof Small and Medium
Scale Enterprises (SMEs)
As discussed earlier, SMEs play a significant role in the economic development of
a nation. Following are the characteristics of and SME :
 Labor Intensive: Indicates that SMEs provide employment opportunities to
individuals in urban and rural areas, which, in turn, enhances the economic
position of the country .
Table 1 :- INVESTMENT CEILINGS OF MSME’S

32.  Flexibility: Implies that SMEs adapt themselves as per the dynamic
industrial environment .
 Innovative: Implies that SMEs use new and innovative materials, methods
of production, market , sources of materials, and even new forms of
organizations, such as sole Proprietorship, partnership, and co-operatives .
 Decentralization: Implies that SMEs facilitate a balanced growth of the
economy as a whole due to dispersal of industries outlet of Entrepreneurial
Spirit: Represents the enthusiasm, perseverance, and creativity of an
individual, who establishes the enterprise .
The significance and relevance of SMEs are shown in the following
points:
 Utilize locally available human and material resources and
expertise/experience
 Create jobs at relatively low cost
 Improve the lifestyle and living standard of people
 Diversify the industrial structure
 Help in increasing the national productivity
 Contribute approximately 35 to 40 percent of export
 Prevent the creation of monopoly
 Ensure more equitable income distribution

33.  Attract and utilize indigenous entrepreneurship and encourage women
entrepreneurs
 Develop a pool of skilled and semi-skilled workers as a basis for future
industrial expansion
 Prevents regional imbalances by their presence in backward, rural, and the
exterior most part of the country
 Adapt appropriate technological managerial approaches optimally
 Facilitate a favorable balance of trade
 Role of Small and Medium Scale Enterprises in Economic Development
SMEs constitute a vital and decisive segment of small-scale sector. They account
for 40% in the manufacturing sector and contributes approximately 35% of the
total direct exports. SMEs play a crucial in employment generation, resource
utilization, and income generation, Due to their unique economic and
organizational characteristics, which, in turn, help in the economic development of
a country. In India, the emphasis is given to the development of SSEs; therefore,
the government formulates several policies and programs to promote SSEs.
Contribution/Role of SMEs in the Economic Development
The contribution of SSEs is explained as follows:
1. Employment Generation: Implies that SMEs made a significant
contribution in employment generation and rural industrialization due to
their high labor intensive nature. Thus, the employment growth rate of SMEs
is higher than that of the large sector.

34. 2. Higher Productivity: Refers to the fact that SMEs with a lower level of
investment tend to achieve a higher productivity of capital than large-scale
enterprises. It has been estimated that an investment of Rs. 1 lakh in fixed
assets in small-scale sector produces 4.62 lakhs worth of goods or services,
which are an approximate value addition of 10% to the total investment. Due
to this unique characteristic, SMEs contribute to national productivity.
3. Poverty Alleviation: Signifies that SMEs contribute in mitigating poverty
by providing employment opportunities to people in urban and rural areas.
SMEs create a large number of job opportunities and are focused on utilizing
the traditional skills and knowledge of Individuals along with advanced
technologies, capital, and innovative marketing practices. According to a
study conducted by World Bank, small to medium enterprises sponsor
projects with a noticeably higher proportion of unskilled workers in
comparison to medium to large enterprises. SMEs provide job opportunities
to even those individuals, who are overlooked by large or modern
enterprises, which directly help in alleviating poverty.
4. Better Utilization of Local Resources: Refers to the fact that SMEs make
the efficient use of locally available resources, whereas large enterprises
usually have a great propensity to import raw materials and capital goods.
For example, SMEs are usually focused on fulfilling the demand of domestic
market, while using the local resources, such as land, labor, and raw
materials. Moreover, SMEs are labour intensive in nature and make the
efficient use of labor. The labor intensive techniques in large enterprises
usually pose special difficulties, such as labor union demands or government
regulations, which rarely create problem for SMEs. Therefore, SMEs are
better able to use indigenous resources than large enterprises.
5. Tapping of Savings: Implies that SMEs generally have a potential of
saving a large portion of their income. The empirical evidence shows that
small-scale entrepreneurs are motivated to save for future investment
purposes. By reserving a good proportion of their income, small-scale
entrepreneurs can ensure their strong base and secured existence. This also

35. helps in reducing the dependence of small-scale entrepreneurs on
institutional sources of financing.
6. Utilization of Domestic Technology: Implies that SMEs are more likely to
use relatively simple, general-purpose machinery that is often obsolete as per
the standards of developed countries. Such machines are usually
manufactured locally in small machine shops. In this way, the local
industries involved in producing machinery and equipment and the local
repair shops become closely familiar with the SMEs machinery and
equipment requirements. Thus, SMEs promote machine building and
adaptive capability evolution by using simple less efficient or elegant
machines.
7. Regional Balance and Rural Development: Signifies that SMEs
contribute in maintaining regional balance and the development of rural
areas to a large extent. In developing countries, industry is generally highly
concentrated in few places resulting in regional imbalances and migration of
people from rural areas and small towns. SMEs due to their locational
flexibility require less infrastructure facilities and usually serve to a
narrower geographical market, which results in maintaining the regional
balance of the country. The relatively labor intensive technology of SMEs is
appropriate for the lower wage rates prevailing outside metropolitans, that
are small and medium towns and rural areas. This helps in the development
and progress of small and medium towns and rural areas. Apart from this,
underemployment is the major problem in rural areas due to slack
agricultural seasons resulting in depressed rural incomes and increased
migration of people to cities. Generally, SMEs involved in agricultural
processing business create employment in rural areas. Other small scale
involvements in rural areas include blacksmithing, brick-making, tailoring,
carpentry, and furniture-making .
8. Export Contribution: Refers to the fact that the number of small-scale
undertakings involved in export is more than 5,000. The overall contribution
of SMEs to the total export of India is approximately 35%. The direct export

36. channel of SMEs includes merchant exporters, trading and export houses,
and export orders of parts and components that are used in finished
exportable goods by large-scale units. The major items of export by SMEs
are low-skilled labor-intensive goods, such as readymade garments, leather
products, gems and jewelry items, sports and plastic goods, chemicals, and
processed food.
9. Contribution to Decentralization: Implies that SMEs prevent the
concentration of power in few hands and ensure equitable distribution of
wealth. It is evident that a number of SMEs are located in rural areas. On the
other hand, large-scale industrialists take interest in locating their industries
only in urban centers, which results in the accumulation of wealth in certain
areas only.
10. Complementary to Large-Scale Industries: Signifies that SMEs produce
various types of components, such as spare parts, tools, and accessories,
which are required by the large-scale industries. In addition, SMEs also help
in distributing the goods produced by large-scale industries. In this way,
SMEs are complementary to large-scale industries.
Small and Medium Scale Enterprises in Indian Environment
India has experienced a noteworthy growth of SMEs post-independence.
SMEs have played an important role in the creation of employment
opportunities in urban and rural areas. In addition, they have contributed to
the export growth of India to a large extent. In this way, SMEs have helped
in the economic development of India by increasing the national income.
Small-scale sector include a wide spectrum of industries categorized under
small, tiny, and cottage industries, ranging from craftsmanship, ancillary
undertakings, EOUs, women-run enterprises, and SSSBEs to modern
productive units with large investments. The emerging needs of the small-

37. scale sector, such as protection against large-scale industries and foreign
competition, have forced the Indian government to revise the investment
ceilings for this sector. The current revision in investment ceilings for plant
and machinery for SMEs is Rs. 1 crore and for service-related industrial
enterprises is up to Rs. 10 lakhs. The main objectives of this revision is to
enhance the growth of SMEs in the private sector, promote technological
upgradation, improve the quality of existing SMEs, and boostexports.
In India, the small-scale sector can be further sub-divided into two
categories, namely, traditional sector and modern sector. A significant
number of SMEs in the traditional small scale sector are located in rural belt
as well in urban areas. The traditional small-scale sector includes khadi,
village industries, handlooms, handicrafts, sericulture, and coir industries.
On the other hand, the modern small-scale sector includes textile products,
wood, furniture, paper and printing, metal products, chemicals, rubber and
plastic products, electrical machinery, and transport equipment.
In India, since the beginning of planning in 1950-51, considerable efforts
have been made to promote small-scale sector as a part of national
development plans. At the time of independence, agriculture was the main
source of employment for people, but with increasing rate of population, it
became impossible to employ everyone in the agricultural field. Even, large-
scale sector in India was also unable to provide employment to a large
number of people as the investment cost per job is usually high there.
Thereby, the government has formulated several policies and schemes for
the development of SMEs because of their labor intensive nature.
Factors Influencing Small and Medium Scale Enterprises
(SMEs)
An SME can be successful if the environment in which it operates is
conducive. There are several factors in the environment that affect the
performance of an SME. Some of the important factors are explained as follows:

38.  Political Factors: Imply that overall political environment of a
country affects the performance of an SME. An SME needs requires
constructive measures from the government and political bodies to
establish and expand its business. These measures involve investment
policies, creation of promotional agencies, industrial estates, and free
trade zones as well as availability of low costloans for SMEs.
 Economic Factors: Signify that an SME should take into
consideration the economic environment of the country. Analyzing
the economic environment helps the SME in making investment
decisions, determining market conditions, and forecasting.
 Technological Factors: Refer to the fact that an SME needs to adjust
itself according to the changes in the technological environment. An
SME needs to introduce new technologies or update the existing
technologies to keep pace with the increasing competition.
 Socio-Cultural Factors: Play a crucial role in the success of an
SME. An SME needs to fulfill the following conditions for its
survival:
 Accepting change in the society and culture
 Facilitating social mobility
 Tolerating profit-making
 Tolerating private ownership
Apart from the aforementioned factors, a stable and well developed institutional
framework, such as banks, insurance, and capital market, is indispensable for the
emergence and growth of SMEs. In the recent decades, the world economy has
experienced an unexpected growth due to the emergence of SMEs. India is leading
the way to introduce entrepreneurship development programs to identify and
utilize entrepreneurial talents of individuals from all walks of life. Apart from this,
entrepreneurship development programs are now being introduced in schools and
colleges.

39. Industrial Policies and Strategies Related to Small and
Medium Scale Enterprises (SMEs)
In developing countries, the government plays an important role in the
growth and development of SMEs by formulating and implementing several
policies and strategies. The main objectives of industrial policies and
strategies are to provide employment on a decentralized basis, improve the
skills and abilities of individuals, enhance the quality of products, increase
productivity, and promote export activities. The industrial policies and
strategies related to SMEs are as follows:
 Industrial Policies: Include various measures taken by central and
state governments for the development of SMEs. These policies
include measures, such as product reservation, fiscal concessions,
extension of business and technical services, preferential allocation of
credit and interest subsidy in a credit-rationing framework, marketing
assistance. The prime objective of these industrial policies is to
provide strength and growth-impetus to the small-scale sector to
enable, so that the sector contributes to the economy in terms of
growth of productivity, employment and exports. Several efforts have
been made to deregulate and de-bureaucratize the small-scale sector
with a view to remove all constraints related to the growth potential of
the sector and identifying and building entrepreneurial talents of
youths. The government has reviewed and modified all laws,
regulations, and procedures, wherever necessary, to promote the
growth of SMEs. Considering the challenges faced by SMEs, the
government has enlisted the following measures in the industrial
policies to improve their competitiveness:
 Providing tax concessions to SMEs to promote investment in the small-scale
sectors
 Granting relief to small-scale entrepreneurs in terms of repayment of loans
 De-licensing the small-scale sector substantial
 Increasing technological facilities

40.  Facilitating adequate flow of credit
 Improving infrastructure facilities and promoting marketing of products
 Improving access to latest information by automating the government
departments meant for supporting the small-scale sector
 Initiating various services, such as advisory and mentoring services,
technology business incubators, and supplier rating accreditation services
 Strategies: Include plans or schemes meant for the progress of SMEs
by the government. Mahalanobis was the first strategy formulated by
the government for the promotion of SMEs and was evolved during
the 2ndFive Year Plan. The strategy was related to the economic
planning, which focused on the development of the small-scale sector.
At the time of evolution of the Mahalanobis strategy, the atmosphere
was all overcharged with programs and plans for a rapid development
of heavy capital goods industries. The strategy envisaged that small-
scale sector would have to bear the responsibility of fulfilling the
growing needs of consumer goods in the economy. The government
has taken extensive measures for the growth and development of the
small-scale sector.
Generally, small-scale units are owned and run by one or few
individuals, who have weak capital base, lack of proper technical
knowhow, weak bargaining power, and poor marketing capability.
Therefore, the Indian government has formulated various strategies
for the small-scale sector to overcome these deficiencies. These
strategies include several incentive and supporting measures for the
small-scale sector.
The main objectives of these strategies are as follows:

41.  Enabling the small-scale sector to withstand the competition from
large-scale sector
 Assisting individuals to identify and use the available opportunities
 Improving the productivity of the small-scale sector and quality of
goods
 Reducing the productioncosts
 Utilizing the existing capacities of the small-scale sector by
supplying adequate inputs
 Expanding the share products manufactured by village and small
industries in domestic market through publicity, standardization, and
market support
 Strengthening ancillarization programs to establish improved
linkage between large and small enterprises
 Providing specialization in production
 Increasing self-employment opportunities by strengthening the skills
profile, entrepreneurial base, and management practices
 Providing better working conditions, welfare measures, and security
of employment to improve the general level of workers and artisans
 Transforming the small-scale sector from predominantly importing
sectorto exporting sector
 Promoting the active participation of investors
 Creating the conducive environment by providing financial and
technical supportto small-scale entrepreneurs

42.  Providing sustainable economic growth, social protection and
development, infrastructure development, and improved governance
 Refocusing of existing resources by developing a more conducive
set of policies to Stimulate private sector investment in the small-
scale sector
Steps for Starting Small Scale Industry:
A Small scale industry is a privately owned and operated business unit
that is composed of a small number of employees and has relatively
low turnover. Small scale industry is initiated by An entrepreneur
wherein one or two people bear the responsibility of many functions.
Starting a small scale industry is a thoughtful and highly complicated
task which involves the following mentioned steps:
 Decision to become an Entrepreneur: Before starting the small
scale industry, one must take the decision to become an entrepreneur.
An entrepreneur must have the ability to build and manage successful
teams. Qualities like foresightedness, risk-taking, hard work,
innovative, decision making are also very important to become an
entrepreneur. The true entrepreneurship requires creative decision
making, rational approach, problem solving ability and ability to take
quick and correct decision. The profitability and productivity of an
enterprise directly depends upon the decision making capacity of an
entrepreneur. An entrepreneur has to take various decisions in
performing activities of his enterprise. Therefore he must be
innovative in decision making process.
Enterprise and entrepreneur are complimentary to each other. Success
of an entrepreneur depends on selection of the idea to start an
enterprise in a particular business, and at the same time the successful
enterprise can be started if the entrepreneur has the characteristics and
skills to handle that enterprise. Therefore, business idea must be
selected on the basis of the skills and abilities of an entrepreneur.

43.  Search for Business Idea: An entrepreneur should be the opportunity
seeker and his most important task is to search or discover and to
select the best business ideas. A good business idea must be capable
of converting into a feasible project. An entrepreneur may come
across multiple business alternatives but he has to select the most
promising idea because, the success of the enterprise depends on
identification and selection of the project idea.
Idea generation and project Identification is the foremost step for
starting a new business but is one of the most difficult tasks. It deals
with selecting the best business project out of the several opportunities
available.
SME FUNDING AND SOURCES OF FINANCE
OF SME’s
Introduction
The ultimate success of an enterprise depends upon the availability of
sufficient finance. In other words, finance is the prerequisite for
mobilizing the resources of an enterprise. An enterprise requires
finance at every stage of its life cycle. For example, in the inception
stage, it needs finance for setting up plant and purchasing fixed assets,
such as machines and equipment. However, in the development stage,
finance is required for continuous mobilization and up gradation of
enterprises to survive and grow in today‘s competitive business
environment. In addition, the efficient functioning of various
departments, such as production, marketing, research and
development, of the enterprise depends on smooth flow of finance.
For example, The marketing department of an enterprise needs a
sufficient amount of funds for promoting and distributing the product.
Therefore, an enterprise needs to be prudent while managing finance

44. for a project. The financial needs of an enterprise depend on various
factors, such as size and nature of the business.
An enterprise can raise long term finance by issuing equity and
preference shares, borrowing capital and using retained earnings. On
the other hand, medium term finance can be raised through lease
finance, hire purchase and public deposits. Short term finance is raised
through trade credit, installment credit, certificates of deposits and
bank loans. Apart from this, an enterprise can also raise finance from
various financial agencies such as commercial banks and co-operative
banks. The Indian government has opened several institutions such as
Small Industries Development Organizations (SIDO) and National
Small Industries Corporation Ltd (NSIC), to provide financial
assistance to small and medium scale entrepreneurs.
Stages of Financing an Enterprise
There are basically two stages of financing an organization:
 Early Stage Financing
 Later Stage Financing

46. Financing a New SME
Every enterprise requires finance for establishing its business and carrying
out various related activities. Financing a new SME essentially involves two
parts, viz, estimating the funds/capital requirement and deciding sources. An
enterprise has two types of financial requirements, namely, fixed capital and
working capital, which are discussed as follows:
 Working Capital: It is that capital which is invested in current or short-term
assets. It covers expenses, such as buying the raw material, payment of
wages and salaries, rent, fuel, electricity and water, repairs and maintenance
and advertising. The prepaid expenses, cash, inventory and the bills
receivable are regarded as current assets. The funds invested in current
assets are recovered by realizing cash. Therefore, working capital is also
regarded as revolving capital or circulating capital.
 Fixed Capital: The fixed capital helps in purchasing fixed or durable assets,
such as land, building, machinery, equipment and furniture. The fixed
capital is also known as long term capital. The amount of fixed capital
depends mainly upon the nature and size of the business. The manufacturing
industries requires huge amount of investment whereas the trading concerns
require comparatively lesser investments.
Estimating Financial Requirements
An enterprise can raise funds only, if it is clearly determines its financial
requirements. Estimating the financial requirements for an enterprise
involves determining the total amount of capital required for various needs
of the business and deciding the sources and methods to raise it. The
financial needs can be fulfilled though the owned capital or the borrowed
capital. The financial requirements on the basis of period of use are
classified into three types, which are as follows:

47.  Long-Term Capital: Long term capital is required to finance the fixed
capital and permanent part of the working capital. It is raised through
various sources, such as by issuing debentures and shares and taking loans
and advances from banks and financial institutions. It is the capital which is
required for a period of five years or more.
 Medium-Term Capital: This kind of capital is required for performing
different activities viz. renovation of buildings, expenditure on advertising
and modernization of machinery. This capital can be raised from different
sources such as issuing of debentures and shares and reinvestment of
accumulated profits. The medium term capital is required for a period of two
to five year.
 Short-Term Capital: Short term capital is required to finance the current
assets and to meet day-to-day expenses. It can be raised from various
sources such as banks, installment credit and trade credit. The short term
capital is needed for a period of less than a year.
Sources of Arranging Finance for SMEs
An enterprise raises funds for different purposes depending on the time
period ranging from short to long duration. The total amount of financial
needs of an enterprise depends on the nature and size of the business. On the
other hand, the aim of raising funds depends on the objectives of the
enterprise. An enterprise can opt for various sources of financing, which are
mainly three types and are discussed in detail as follows:

48. Sources of Long Term Financing
An enterprise needs long term finance for expansion, diversification, technological
innovation and research and development projects. It can be raised through
different sources depending upon the amount of capital required to complete the
project and is explained as follows:

49. 1. Equity Financing: Equity financing refers to a method of raising long term
funds by selling the common and preferred stock of the enterprise to the
investors. The investors get ownership interests in the enterprise in return of
amount paid by them for purchasing the common and preferred stock of the
enterprise. It can be raised through shares.

50. Shares are easily transferable and involve limited liability of shareholders to the
face value of the shares. The shares are basically of two types viz. equity shares
and preference shares.
2. Debt Financing: Debt financing is a form of financial instrument that
provides long term debt to an enterprise. It can be raised through debenture
capital, a source to raise debt capital. Debt financing is an agreement
between the enterprise and a debenture holder. It clearly indicates that the
enterprise would repay the debt at a specified date to debenture holders. If an
enterprise raises funds through issuing debentures, it needs to pay a fixed
rate of interest at regular intervals. Debenture holders of an enterprise are
known as creditors.
3. Term loan: loans are the types of long term loans that are raised for the
duration of 3 to 10 years from banks and financial institutions. Term loans
carries floating rate of interest and have pre-determined maturity period. The
main sources of these loans are IDBI, ICICI, Commercial Banks, and IFCI
etc. An enterprise uses term loans to purchase fixed assets and fund projects
having long gestation period.
Sources of Medium Term Financing
Medium term financing is required for performing different activities viz.
renovation of buildings, expenditure on advertising and modernization of
machinery. This capital can be raised from different sources such as issuing of
debentures and shares and reinvestment of accumulated profits. The medium term
capital is required for a period of two to five years. An Enterprise can avail
medium term finance through various sources including lease finance and hire
purchase, venture capital finance, public deposits and retained earnings. The
following figure shows the sources medium term finance:

52.  Retained Earnings: In retained earnings, the enterprise uses its
accumulated profits for future investments, which can be long term and short
term in nature. At the end of each financial year, some of the undistributed
profits are left with the enterprise. These profits are transferred to reserve
funds each year and this funds is known as retained earning.
 Lease Finance: Lease finance is an agreement between the owner of assets,
called the lessor and the user of assets called the lessee. In lease finance,
only possession of asset is transferred to a lessee and ownership of the title
remains with the lessor. Lessee makes payment to the lessor after a specified
period of time to use the asset. This periodical payment is called as lease
rent.
 Hire Purchase: In hire purchase, there is an agreement between a hire who
is the owner of the property and a hirer who is the user of the asset. As per
this agreement, the hire transfers his/her asset to the hirer keeping ownership
of title with himself/herself and the hirer gets the possession of the asset. In
hire purchase, the beneficiary receives the payment from the hirer
periodically. The payment made to the hire is divided into two parts viz.
capital repayment and interest.
 Public Deposits: Public deposits are a significant way of raising medium
term fund. It can be defined as funds and loans raised from general public,
employees and other similar kind of depositors. These are treated as one of
the easiest way of raising funds during credit crisis as public is always ready
to invest in the profitable projects of different enterprises.
 Venture Capital Financing: It is one of the widely used sources of medium
term finance. It is also called risky capital, as it requires to be paid even in
case of loss. Venture capital is a form of quasi equity and is generally
required by newly established enterprises. The capitalist who invests in
venture capital is not similar to bankers and equity shareholders. A venture
capitalist acts as a partner, manager and advisor to the enterprise. This type

53. of capital is required at the time of incorporation, expansion and acquisition
of a project.
Sources of Short Term Financing
Short term financing may be defined as the credit or loan facility extended to
an enterprise for a period of less than one year. It is a credit arrangement
provided to an enterprise to bridge the gap between income and expenditure
in a short period of time. It helps the enterprise to manage its current
liabilities, such as payment of salaries and wages to labours and procurement
of raw materials and inventory. The availability of short term funds ensures
the sufficient liquidity in the enterprise. It facilitates the smooth functioning
of the enterprise‘s day to day activities. The important sources of short term
financing are:
 Trade Credit: Trade credit is an arrangement in which the supplier allows
the buyer to pay for goods and services at a later date in future. The decision

54. to provide trade credit depends on the mutual understanding of both the
buyer and supplier. The supplier takes the decision to extend trade credit
after taking into consideration creditworthiness, goodwill and record of
previous transactions of the buyer.
 Installment Credit: Installment credit is another source of short term
financing, in which the amount that is borrowed is repaid with interest in
equal installments. It is also called installment plan or hire-purchase plan. It
helps an enterprise in purchasing the new plant and machinery in the
absence of funds for a time period.
 Cash Credit: Cash credit is defined as an agreement between the bank and
the customers to withdraw cash exceeding their account limit. Cash credit is
one of the most important instruments of short term financing. The time
limit granted is generally one year which can be further extended by the
bank in case of special request by the customer.
 Commercial Papers: It is an instrument used by the enterprise with high
credit rating to raise money from the market. It is an unsecured promissory
note, which the enterprise offers to the investors either directly or indirectly
through the dealer. Commercial papers are generally sold by large
enterprises , which have strong goodwill in the market.
 Bank Loan: Bank loan is the amount of money granted by the bank at a
specified rate of interest for a fixed period of time. It requires minimum
document and legal formalities to pass a loan. Various banks are required to
follow certain guidelines to extend bank loans to the customers. For this
purpose the bank requires the copy of income proofs and identity of the
client and a guarantor to sanction bank loan.
 Certificates of Deposit: This deposit is a type of promissory note which is
issued by the bank to the clients for depositing funds in the concerned bank
for a fixed time period. The maturity of certificates of deposit is designed in

55. accordance with the necessity of investors. The maturity period of
certificates of depositcan range from three months to one year.
 Bills of Exchange: A bill of exchange is a document in which an individual
demands the receiver to give payment for services and goods received to a
third party at a future date. The individual who writes the bill is known as
drawer and t he individual who receives the bill is known as drawee. The
individual who pays the bill is known as payee.
 Customer Advances: It may be defined as a part of payment which is given
in advance to the enterprise by the customer for the procurement of goods
and services in the future. It is also called as Cash Before Delivery (CBD).
The enterprise is free to decide whether to refund the money, if the order is
cancelled by the customers and it does not require paying interest on
customer advances.
 Factoring: Factoring comprises complementary financial services, which is
provided to the borrower. The borrower has the freedom to select the set of
services provided by the factoring enterprise. Factoring ensures that the
services will be given to the clients at a faster pace and with good quality.
 Bank Overdraft: It is a temporary arrangement between the bank that
allows the organization to overdraw from its current deposit account with
the concerned bank up to a specified limit. This facility is granted against
securities, such as promissory notes, goods in stock, or marketable
securities. The interest rate which is charged on cash credit and bank
overdraft is very high as compared with the rate of interest on bank
deposits.

56. TOP 10 INDIAN ENTREPRENEURS
1. Dhirubhai Ambani
Dhirubhai Ambani (1932–2002) is an Indian businessman who started
out humbly by selling traditional snacks to religious pilgrims. His
business soon grew, and he expanded and diversified into industries
including telecommunications, power generation, information
technology, consumer goods, and logistics.
Today, Reliance Industries is India’s largest private company and is
listed on the Fortune 500. Ambani’s son now runs Reliance and is one of
India’s wealthiest people; Mukesh Ambani, 65, is worth $92.5 billion,
according to Forbes.
2. JahangirRatanji Dadabhoy Tata
Jahangir Ratanji Dadabhoy Tata or JRD Tata (1904–1993) was born in
Paris to Indian and French parents. He was trained as an aviator in
Europe and later became India’s first commercial airline pilot. Working
for the family business, TATA group, he set out on his own and built
TATA Airlines, which ultimately became the modern Air India.
By the time of JRD Tata’s death, TATA owned nearly 100 different
businesses across many industries.5 Notably, his automobile venture,
Tata Motors (TTM), produces economical automobiles that nearly all
working Indians can afford to own.6 JRD Tata is descended from
Jamsetji Tata who founded the TATA group of companies in the mid-
1800s.
3. Nagavara RamaraoNarayana Murthy
Nagavara Ramarao Narayana Murthy, age 75, is an Indian entrepreneur
who co-founded IT giant Infosys (INFY) with an initial investment of
10,000 rupees, or just a few hundred dollars in today’s terms.

57. With a net worth of $3.6 billion, he is often referred to as the father of the
Indian IT industry, serving as CEO of Infosys from 1981 until 2002, and
then its chair until 2011. As of March 2022, Infosys has a market
capitalization of around $104.7 billion.
4. Shiv Nadar
Shiv Nadar, 76, founded HCL Infosystems in 1976 with an investment of
a few thousand dollars, selling calculators and microcomputers. HCL
soon expanded to Singapore and the Far East, generating over 1 million
rupees in sales not long after its expansion. HCL has continued to grow,
making Nadar a billionaire worth over $24.5 billion.
5. Lakshmi Niwas Mittal
Lakshmi Niwas Mittal, 71, is an Indian entrepreneur who began his
career working for his father’s steel business. He later set out on his own,
due to family infighting and created what is now one of the largest
steelmakers in the world, ArcelorMittal (MT). As of May 18, 2022,
ArcelorMittal has a market capitalization of $25.79 billion.12 Mittal
himself is worth about $16.8 billion.
6. Ghanshyam Das Birla
Ghanshyam Das Birla (1894-1983) is a well-known Indian businessman
who started his first company in the early 1900s operating a cotton and
textile mill. By 1919, Birla’s businesses also included significant paper
and sugar production. By the time he died, Birla Group was a multi-
sectorglobal conglomerate.
His great-grandson Kumar Mangalam Birla, 54, now runs the company
and commands a net worth of $14.3 billion.15
7. Dilip Shanghvi

58. Dilip Shanghvi, 66, started Sun Pharmaceutical in 1982 with a meager
10,000 rupee investment, or approximately $200. As the son of a
pharmaceutical distributor, Shanghvi knew what he was doing. Today,
through gradual development and a series of acquisitions, that investment
has grown revenue in 2021 to $4.31 billion, making Sun Pharma India’s
largest pharmaceutical company.16 Today, Shanghvi has a net worth of
around $15 billion.
8. Azim Premji
Azim Premji, 76, is worth an estimated $9 billion and is the former chair
of Wipro Industries (WIT), a diversified software and technology
company that many have compared to Microsoft. Premji is sometimes
referred to as India’s Bill Gates as a result, alongside his informal title as
“czar” of the Indian IT industry.
9. MukeshJagtiani
Mukesh “Micky” Jagtiani, 70, is an Indian-Emirati businessman who has
spent most of his life outside of India. While he was educated in Mumbai
and Beirut, he moved to London for accounting school, before dropping
out. Soon, starting his first company while driving a taxi, his company
eventually grew into the retail and real estate giant Landmark, now based
out of Dubai.
In recent years, Landmark has even expanded into e-commerce. Jagtiani
is worth about $3 billion.
10.Ardeshir Godrej
Ardeshir Godrej (1868-1936) co-founded the Godrej Group, a diversified
conglomerate with interests in real estate, consumer products, security,
household appliances, and industrial tools. The company had modest
beginnings—Ardeshir and his brother succeeded at locksmithing after
failed ventures into hand-fashioned medical devices.

59. Godrej Group was founded in 1897, and the Godrej companies have
revenues of over $6 billion today. His grandson, Adi Godrej, 80, who
runs the company, is worth $2.5 billion.
NO. 1 ENTREPRENEUR OF INDIA
Mukesh Ambani
Mukesh Dhirubhai Ambani is an Indian entrepreneur, the largest shareholder, billionaire business
magnate, chairperson and managing director of Reliance Industries Ltd. He was the richest man in Asia
until 2020. He was born on 19th
April 1957 in Yemen. His father’s name is Dhirubhai Ambani and his
mother’s name is Kokilaben Ambani. He has one brother Anil Ambani and two Sisters, Nina Kothari and
Dipti Salgaocar. They lived only briefly in Yamen as Dhirubhai decided to move back to India in 1958.
He wanted to start a trading business for spices and textiles. Until 1970, they lived in a two-bedroom
apartment in Bhuleshwar, Mumbai. Later his father Dhirubhai purchased a 14-floor apartment block
called ‘Sea Wind’ in Colaba.

60. MukeshAmbani Education:
He completed his schooling from Hill Grange Highschool at Paddar road, Mumbai. He completed his BE
inChemical EngineeringfromInstitute of ChemicalTechnology.
He enrolled for MBA at Stanford University but withdrew in 1980 to help his father build Reliance. His
fatherDhirubhai believesthatreal-life skillswere harnessedthroughexperience,notbyeducation.
Entrepreneurial Journey
He started to help Dhirubhai in running family business in 1981. By the time the business also included
products and services in retail and communication industries. Reliance Jio has earned a top-five spot in

61. the country’s telecommunication services since 2016. As of 2016, he was ranked 38, and consistently
heldthe title of India’srichestpersononForbesmagazine’slistforthe pasttenyears.
He is the only businessperson on Forbes’s list of world’s most powerful people. In January 2018, he was
ranked 18th
wealthiest person in the world by Forbs magazine. He is also the wealthiest person in the
world outside North America and Europe. He ranked fifth among India’s philanthropists, according to
China’sHurunResearchInstitute in2015.
He became the first non-American to become Director of Bank of America. Through Reliance, he owned
Indian Premier League franchise Mumbai Indians. He is a founder of the Indian Super League, a football
league inIndia.Forbesnamedhimone of the richestsportsownersin2012.
His residence Antilia Building is one of the world’s most expensive private residences. Its value reaches
$1 billion.

62. Mr. Ambani is also a member of the following forums:
 Stanford Global Advisory Council
 McKinsey & Company International Advisory Council
 The Business Council
 Chairman of the Board of Governors, Pandit DeendayalPetroleum University in Gujarat
 India Advisory Group of the London School of Economics
 India Advisory Council of The British Asian Trust (as Chairman)
 Indo-U.S. CEOs’ Forum
 Board of Governors of the National Council of Applied Economic Research, India

63. List of MukeshAmbani companies
1. Reliance retail
Reliance Retail is one of the subsidiaries of Reliance Industries. The company runs various brands &
supermarkets under its name. Reliance Retail is the largest retailer in India with subsidiaries like Reliance
Fresh, Future Group, Hamleys, Ajio, Urban Ladder & Net Meds.
2. Reliance life science
Reliance Life Sciences is a subsidiary company formed by Reliance Industries for its expansion in the
medical industry. The company aims research & development in medicinal fields.

64. 3. Reliance jio infocom limited
Reliance Jio Infocom Limited is a telecommunications company. The company is headquartered in
Mumbai & is India’s largest mobile network operator. JIO network only offers 4G LTE data services.

65. 4. Reliance petroleum
Reliance Petroleum is an Oil & Energy industry & a subsidiary of Reliance Industries Limited. The
Petroleum company was merged with Reliance Industries in 2008.
5. Network 18
Network 18 is a Mass Media company owned by Reliance Industries Limited. Raghav Bahl & Ritu
Kapoor founded the company in 1993 later, Reliance bought the company. Network 18 is one of the most
leading mass media companies. Network 18 owns media channels like Colors Entertainment & is a
partner with CNBC,MTV, CNN & Nickelodeon.

66. 6. Football sports development limited
Football Sports Development Limited is a subsidiary of Reliance Industries & was made to operate a
football league in India. It was founded in 2014 & is headquartered in Mumbai. The India Super League
is also operated by Football Sports Development Limited.

67. 7. Reliance industrial infrastructure limited
Reliance Industrial Infrastructure Limited, formerly known as Chembur Patalganga Pipelines Limited is a
subsidiary of Reliance Industries Limited. It offers services in oil, gas & Infrastructures.

69. I am proud
that my father
is an
entrepreneur
because he is
an auto driver