Entrepreneurship development - Venturing Small Business

UNIT III
VENTURING SMALL BUSINESS
MR.T.SOMASUNDARAM,
ASSISTANT PROFESSOR
DEPARTMENT OF MANAGEMENT STUIDES
KRISTU JAYANTI COLLEGE (AUTONOMOUS)
BENGALURUUnit 3 – Venturing Small Business 1

UNIT III
VENTURING SMALL BUSINESS
Steps involved in starting a business
venture, Location, Clearances and
permits required, formalities,
licensing and registration procedures,
Feasibility study (financial, technical
and social) of project, Sources of
Finance – Short term and Long term
(Venture capital and Angel investing)
2Unit 3 – Venturing Small Business

LAUNCHING OF SMALL BUSINESSStages:
1) Pre Launch:
* Identify, Analyze & decide on business idea.
* Analysis of SWOT, competition, position strategy.
* Estimate the forecast, market size, growth.
* Understand the technology, process, location.
* Identify incentives by government, financial institutions.
2) Launch:
* Selection of Name of firm, hiring / construction.
* Ownership pattern, Registration, Prepare business plan.
* Raising of finance, Recruitment, Machinery.
* Source of raw materials, Distribution channel, etc.
3) Post Launch:
* Problems to be solved, feedback on product.
* Changes if need and Expansion. 3

BUSINESS ENVIRONMENT
 Business environment acts as a vital aspect in establishing a
business unit.
 Many variables in the environment are essential for
successfully running the business.
 Environmental forces have two types of variables like –
a) Controllable variables – it is internal factors such as
production policy, financial policy, marketing policy, HR
policies, etc.
b) Uncontrollable factors – it is one which cannot be controlled
and will have direct impact on the business.
 Every firm must operate within the framework of forces
which constitutes the business environment.
 The more a business understands its environment, the better
chance it has for profitable growth. 4

Business Idea:
“Business Idea is a business seed, which expands and
grows into a business tree.”
Sources of Business Idea:
1. Market Source:
- consumer, supplier, distribution channel, Government and
existing product / service.
2. Technical Source:
- company, internal research and development.
Business Opportunity:
“Business opportunity is defined as an attractive project
idea which an entrepreneur accepts as a basis for investment
decision.”
Components: 1. Good Market scope (demand & supply).
2. Attractive Return on Investment (ROI). 5

Sources of Business Opportunity:
Some of the sources of business opportunity are –
1. Knowing consumers requirement – opportunities arise
when large number of consumers are in need of the product
and entrepreneur identifies the opportunity and capitalize on it
by starting his business.
2. Market Research – scan the environment, assess demand,
examine technical feasibility of various opportunity to
establish a unit.
3.Business Magazines, Newspapers and Trade journals – this
highlights the trend and various developments taking place in
different industries and provide source of information.
4. Technical and Non – technical education – entrepreneurs
possessing specialized technical skill can find various
attractive options of setting up their enterprise. 6

5. Availability of raw material – it is easily locate
opportunities in those fields where raw materials required
for production is available at particular place in abundant
quantity.
6. Monopoly business – energetic, innovative and
imaginative entrepreneurs perceive monopoly business as
an opportunity.
7. Imaginative and Creative attitude – it helps in creating
numerous entrepreneurial openings and this skill helps
people in making their mark in various fields.
8. Government Assistance – relatively more resources
formulates various schemes of assistance for promotion
of industrial activities in certain areas.

It is noted that scanning the business environment reveals the
following factors relating to business opportunity –
i) The environment is conductive to start or not to start the
business.
ii) The proposed production is needed in that locality or can
serve as an ancillary unit to a large industry.
iii) Whether production facilities in case of small units are
available without much problems?
iv) Whether product can be produced at cheaper cost?
v) Whether the proposed SSI can easily market its product?
vi) Whether the technology to produce is available and at what
cost?
vii) Can the total project cost be mobilized without any
problems?

SETTING OF A SMALL – SCALE INDUSTRY
 The process of setting up a small – scale industry has
been indicated on basis of practical experience
gained in its promotion.
 The objective of the promotional regulations is to
provide an impetus to growth of a small scale
industry and regulate supply of machinery,
electricity, water, premises, finance, raw materials
and markets.
 The process of production and marketing is governed
by a series of rules and regulations.

Phases:
Project Selection
Phase
a) To gather, organize and analyze data.
b) To define functions.
c) To establish a functional monetary
value.
Information Phase
Creative Phase
Evaluation Phase
a) To develop, refine and evaluate
alternative methods generated during
the creative phase.
b) To determine the cost.
c) To select a feasible method offering
best value.

Recommendation
Phase
a) To establish a plan of action for
implementation of the selected method.
b) To obtain approval.
c) To perform all other actions
necessary to put the proposal into effect.
Implementation
Phase
Follow – up Phase
d) To follow – up and audit actual
results.
e) To resolve problems, if any, during
proposal implementation.

Steps (Stages) involved in setting up a small scale industry
(Business venture):
1. Conceiving the Business Idea:
* Establishing a successful business unit depends upon
conceiving a business idea.
* Good business idea makes way for successful business
activity.
* Every business idea should be manageable without much
dependence on others.
* Entrepreneur has to weigh objectively his intrinsic
capabilities in finalizing a business idea.
* Conceiving ideas take place sometimes by intuition of
entrepreneur or by examining the environment for
development of business.

2. Screening the Ideas:
* Entrepreneur has to identify one idea that he hopes to run
successful at a reasonable profit.
* Entrepreneur has to make a comparative analysis of all
conceived ideas in terms of location, availability of
infrastructure, financial aspects, marketing opportunities,
target consumers, etc.
* Screening of ideas is starting point of feasibility analysis.
* Comparative study used to identify logic of project, tasks to
be performed, availing inputs, etc.
* It identifies problems involved and finding whole exercise
will facilitate the selection of meaningful business
proposition and that is the advantage of screening.

3. Business Analysis:
* This involved with cost benefit analysis and it investigate all
costs involved in business.
* Costs include the fixed cost as well as variable cost.
* Cost determining factors or variables are -
i) Size of investment. ii) Location cost.
iii) Cost of technology adapted in production process.
iv) Equipment cost like plant cost, other moving equipment's.
v) Marketing and distribution cost.
vi) Various operating cost.
* Cost of capital means servicing charge of required capital.
* Opportunity cost has to be worked out on own capital and
this will add to cost.

* Entrepreneur has to estimate the revenue, (i.e.) to know the
time involved to get profit out of the proposed business.
* Business analysis considers -
a) Technical analysis.
b) Marketing analysis.
c) Financial analysis and cost involved in each analysis.
* Proposed firm reaches break – even point (BEP) and in what
time period, the firm starts making profit.
4. Feasibility Report:
* This report gives a clear picture of proposed business.
* It also helps the entrepreneur to take to proposed project or
to drop it.
* Project idea is examined in the context of internal and
external constraints. 15Unit 3 – Venturing Small Business

* Three alternatives should be considered as -
i) Project idea seems to be feasible.
ii) Proposed idea is not feasible.
iii) Unable to arrive at a conclusion for want of data.
5. Alternative Plans:
* Feasibility report provides all types of data relating to
proposed business.
* This draft contains Techno – economic analysis, Project
design and Network analysis (it includes sequence of project,
interrelationships with each other, detailed work plan and time
allocation in diagram format).
* Input analysis (requirement during construction of project and
also operation of project).
* Financial analysis (estimating fixed & operating costs and
how to raise. 16

* Cost – benefit analysis (overall worth of project).
* Pre - investment analysis (all results of all analysis are put
together).
* Based on this basic report, entrepreneur has to prepare 2 to 3
alternative plans focusing on different aspects.
(E.g.) Plan A focused on financial aspects, Plan B focused on
labour intensity and Plan C focused on governed regulations and
policies.
* Alternative plans helps the promoter to decide a best course of
action.
6. Preparing a right plan:
* Comparative analysis of all alternative plans has to be made
and a final action has to be prepared considering best aspects of
each plan.
* Economic viability has to be considered on long term basis. 17

7. Project Implementation:
* After finalizing ultimate project plan, entrepreneur starts
implementing various activities to commence business.
* Project implementation is time consuming.
* Entrepreneur has to select site, construct, co-ordinate
production activities.
* Entrepreneur should see that gestation period as minimum
as possible.
8. Feedback and Commercial Production:
* Entrepreneur has to adapt corrective measures and go for
commercial production.
* Entrepreneur has to divert his attention to the marketing of
the product to generate revenue.

LOCATION
 Selecting a place to locate the proposed unit is a real
challenge to entrepreneur and it is said that “good location
is half sold”.
 If proposed unit is located in a place which satisfied all
locational needs, unit will have smooth sail.
Selection of a site for location is decided by the following
aspects:
i) whether the enterprise is new one, or
ii) an on going business unit is to be expanded, decentralized
or diversified, or
iii) if on going unit is a leased one and renewal of lease is not
possible, or
iv) existing location is to be abandoned. 19

The various issues to be examined by entrepreneur before he
selects a particular site –
* Availability of sufficient space including space requires for
future expansion.
* Availability of raw material at reasonable price.
* Easy availability of labour.
* Availability of industrial fuel and its supply.
* Transport facility the proposed unit requires and its
availability.
* Market coverage of proposed product and nearness of site to
market.
* Distribution facilities available for proposed product or
service.
* Availability of power and degree of dependability of its supply.

* Water supply as per the requirement.
* Facilities available for education, health, recreation,
shopping, religious and social life and professional services.
* Housing facilities available to employees of proposed project.
* Laws and regulations conducive for establishing a business
unit.
* Tax incentives available in that locality.
* Climate condition of the area.
 The location that is most beneficial to an enterprise is called
as ‘Optimum location’.
 Entrepreneur has to select the best location by weighing
merits and demerits of location factors before setting up
business unit.
 Selection of best place for establishing a business unit plays a
major role in successful operation of proposed venture. 21

CLEARANCES AND PERMITS
 Several types of clearances and permissions have to be
obtained from different agencies.
 General clearances applicable to SSIs and other size of business
are enlisted.
The following types of industries have to obtain Provisional
Registration from the respective District Industrial Centers
(DICs) –
a) SSIs (Investment in plant below Rs.1 crore).
b) Ancillary industries whose investment in plant and equipment
below Rs.1 crore).
c) Tiny industries (investment below Rs.25 lakhs in plant and
machinery).
d) Women entrepreneurs where one or more women have not less
than 51% financial holding. 22

Other Clearances:
1. Land / Location:
Following clearance are to be taken –
i) Environmental clearances from Government of India.
ii) No objection Certificate (NOC) from pollution Control Board
of respective state.
iii) Change of land use from District Collector / Government in
Municipal Administration and urban development through
Director / Town and Country Planning / Urban development
authority.
iv) Exemption from Urban Land ceiling.
2. Building:
i) Permission for building layout need to be taken from Gram
Panchayat / Municipality / Town and Country planning
department / Urban development authority. 23

3. Plant and Machinery:
i) Approval of layout needs to be taken from Department of
Factories / Boilers (single winds clearance is available in
states).
4. Raw material:
i) Need to get permit for scarce raw materials like coal,
Alcohol, Paraffin wax, etc., if requires from Industries
Department.
5. Power:
i) Need to get power feasibility from concerned state
electricity board.
ii) To obtain approval captive generation, if need.
iii) Agreement with private sector producer to purchase power
fro private generating stations.

6. Water:
i) Own captive source.
ii) Public supply (local bodies).
iii) Supply from state government authority in case of
industrial parks / industrial development areas.
iv) Supply from state irrigation department for bulk
consumption.
Post – implementation Clearances / Approvals:
General Category:
1. Final NOC from APPCB.
2. Registration and License under Factories Act.
3. Clearance from Electrical inspectorate.

4. Letter of Intent for distillery / brewery.
5. Registration under Milk and Milk products order.
6. Mining / Quarry Lease.
7. Registration with Central Excise department.
8. Sales tax registration with commercial taxes
department.
9. Provident fund registration.
10. ESI registration.

LICENSING
 It is a part of clearance activity and all legal aspects to
establish a business unit irrespective of size, have to be
strictly followed.
 Some restrictions on setting up of small scale industrial units
and that licenses from either Central or State governments
have to be taken out before an entrepreneur start a small scale
industrial unit.
 Industries employing less than 100 workers and having fixed
assets of less than Rs.10 lakhs need not obtain any licence
under the Industries (Development & Regulation) Act.
 Small scale units have, to confirm to rules & regulations
prescribed by State or local authorities under Factories Act,
Commercial Establishment Act, Town Planning Rules,
made for issue of quotas for starting business. 27Unit 3 – Venturing Small Business

REGISTRATION PROCEDURES
 Entrepreneurs employing more than 10 workers should get
themselves registered with Director of Industries in their
State.
 Copy of this application for registration should be sent to
Director of SSI in concerned state.
Registration with Director of Industries:
The registration of small scale units is done in two stages –
i) Provisional registration ii) Permanent registration
 Provisional registration is made before setting up of unit
and permanent registration is done after the unit
commences production.
 Small scale & ancillary units should seek registration with
Director of Industries of concerned State government. 27Unit 3 – Venturing Small Business

Registering SSI Unit:
 The main purpose of registration is to maintain statistics and
maintain a roll of such units for purpose of providing
incentives and support services.
 Uniform registration procedures as per guidelines adopted
by States and they use same scheme for implementing their
own policies.
Benefits of Registering:
 It has no statutory basis.
 Units who registered will get some benefits, incentives and
support by State or Central government.
Some of the incentives offered by central government are –
 Credit prescription, differential rates of interest, etc.
 Excise exemption scheme.
 Exemption under Direct tax laws. 29

Objectives of the Registration Scheme:
i) To enumerate and maintain a role of small industries to
which the package of incentives and support are targeted.
ii) To provide a certificate enabling the units to avail statutory
benefits mainly in terms of protection.
iii) To serve the purpose of collection of statistics.
iv) To create nodal centres at Centre, State and District levels to
promote SSI.
Features of the Scheme:
 DIC is the primary registering centre.
 Registration is voluntary and not compulsory.
 Two types of registration is done in all States.
 Provisional Registration Certificate is normally valid for 5
years are permanent registration is given in perpetuity.

Provisional Registration Certificate (PRC):
 This is given for pre – operative period and enables units to
obtain term and loans and working capital from financial
institutions or banks.
 Obtain facilities for accommodation, land, other approvals,
etc.
 Obtain various necessary NOCs and clearances from
regulatory bodies like Pollution Control Board, Labour
Regulations, etc.
Permanent Registration Certificate:
The following incentives are –
 Income tax exemption and Sales tax exemption.
 Incentives and concessions in power tariff, etc.
 Price and Purchase preferences for goods produced.
 Availability of raw materials depending on existing policy. 31

Procedure for Registration:
• Unit can apply for PRC for any item that does not require
Industrial license which means items listed in Schedule III
and items not listed in Schedule I or II of licensing
Exemption notification.
• PRC is valid for 5 years and if entrepreneur is unable to set
up unit in this period, he can apply afresh at end of five years
period.
• Once unit commences production, it has to apply for
permanent registration on prescribed form.
• Unit has to obtain all necessary clearances, if required.
• Unit does not violate any locational restrictions in force, at
time of evaluation.
• Value of plant and machinery is within prescribed limits.

De - Registration:
Small scale unit can violate the regulations in following ways
which will make it liable for de – registration -
• It crosses the investment limits.
• It starts manufacturing any new item or items that require
industrial license or other kind of statutory license.
• It does not satisfy the condition of being owned, controlled
or being a subsidiary of any other industrial undertaking.
Cancellation of Registration:
• The unit remained closed continuously for more than one
year.
• Unit fails to give full and true information required by
registering authority at various intervals of time.
• Unit has misutilized the raw material allocated to it.

PRE-FEASIBILITY STUDY
Four Feasibility study:
1) Marketing Feasibility.
2) Financial & Economic Feasibility.
3) Technical Feasibility.
4) Social Feasibility.

1) MARKETING FEASIBILITY
* Importance.
* Market Information.
Pyramid Approach to Market information
General Environmental & Demographic trends
National food industry trend
Local environment & Demographic trends
Local food industry trends
Local competition Strength &Weakness
Market Positioning
Market objectives

Marketing Research for New Venture:
Step 1: Defining the purpose or objectives.
Step 2: Gathering data from secondary sources.
Step 3: Gathering Information from Primary Sources.
Step 4: Analyzing & interpreting the results.
Understanding the Marketing Plan:
It is designed based on –
i) Where we have been?
ii) Where de we want to go?
iii) How do we get there?

Characteristics of a Marketing Plan:
Provide strategy for accomplishing company mission
/ goal.
Should be based on facts & valid assumptions.
Allocation of all equipment, financial resources,
Human resources.
Appropriate organization described to implement
marketing plan.
Provide continuity that build marketing plan &
success for longer term goals and objectives.
Should be simple & short.
Success of plan depend on its flexibility.

MARKETING SYSTEM
Feedback
Marketing – mix decisions
External
Environment
•Economy
• Culture
•Technology
•Demand
•Legal
•Raw Materials
Internal
Environment
•Suppliers
•Goals / Objectives
•Management team
Entrepreneur Marketing
Planning
Decision
Marketing
Strategies
directed to
customer
Purchase
decisions
Of
customers

Steps in preparing Marketing Plan:
Step 1: Defining the business situation.
Step 2: Defining the target market / opportunity & threat.
Step 3: Considering Strength & Weakness.
Step 4: Establishing goals & objectives.
Step 5: Defining marketing strategy / Action program.
Marketing Mix:
* Product, * Pricing, * Place / Distribution, * Promotion.
Marketing Strategy: (Consumer Vs B2B Markets)
 Budgeting the market strategy.
 Implementation of the market plan.
 Contingency Planning.

2) FINANCIAL / ECONOMIC FEASIBILITY
* Operating & Capital Budgets.
Financial Plan:
1. Pro forma Income statement.
2. Pro forma Cash flow i) Indirect Method, ii) Direct
Method.
3) Pro forma Balance Sheet.
* Assets, * Liabilities, * Owner Equity.
Methods for Evaluation of Financial Feasibility:
a) Cost of Production & Marketing.
b) Break even Analysis – volume of sales where the venture
neither makes a profit nor loss.
c) Assessment of Fixed / Working Capital requirements. (i.e.)
Net Working Capital = Current Assets – Current liabilities. 40

Definition:
“ It is absolutely essential that the entrepreneur
knows exactly the minimum number of units to be sold or
how much sales volume must be achieved for a break”.
Total Fixed Cost (TFC)
B/E =
Selling Price (SP) – Variable cost / unit.
TR
Break even point TC
Variable Cost
FC
loss
Quantity

Determination of Working Capital requirements:
 Size of unit / volume – in terms of Sales.
 Length of Credit period.
 Length of time involved in payment.’
 Nature of business, Seasonal variations.
 Turnover of inventories, Nature of production
technique.
Classification of Financial needs:
1. Fixed & Working Capital.
2. Long / Short term finance.
* Capitalization & over Capitalization.

Sources of Finance:
1) Internal Sources.
* Equity.
* Deposits.
* Fund.
* Loan.
2) External Sources.
i) Long term sources ii) Short term sources
* Shares * Public deposits.
* Debentures * Trade Credits.
* Financial institutions. * Factoring.
* Commercial banks. * Bill discounting.
* Bank Overdraft.

3) TECHNICAL FEASIBILITY
Technical Analysis:
1) Highly labour intensive.
2) Balance of labour & capital.
3) Highly capital intensive.
Identification of barriers:
1) Technically high complex – difficult to customer.
2) Barrier in finance – too big, high investment.
3) Market competitive.
Evaluate: 1) Raw material Analysis. 2) make or buy decision.
Location feasibility:
1) Plant size / location. 2) Market oriented location.
3) Material oriented location. 4) Layout. 44

Some of the important aspects examined while deciding
particular technology are as under –
 Technology should, as far as possible, already established.
 If not already established, expected to assess the technology
and risk calculated.
 Technology should be based on indigenous raw materials
and resources.
 Technology should be workable under local conditions,
(e.g.) temperature, humidity, availability of skilled labour,
power, etc.
 It should be tune with national goals and objectives (E.g.)
employment potential, export promotion, etc.
 Continuous updating of technology is examined when
selecting particular technology.

The following factors are examines where technology
proposed to be adopted is not well established –
 Whether technology / process is patented or not.
 Degree of reliability of the proposed process.
 Scale of development (i.e.) whether laboratory scale, pilot
plant scale, etc.
 Flexibility (i.e.) whether equipment for process can be used
for alternatives processes or products.
 Each process is separately evaluated in view the effect of
various factors and process with optimum advantages is
selected.
 Technological progress had been rapid and new improved
processes are being developed fast.

4) SOCIAL FEASIBILITY
 It is necessary to consider the total impact of the project on
the society.
 With a view to evaluate the project, social cost – benefit
analysis is used.
 Through the cost benefit analysis, the project will help the
society to improve its image or profile is indicated.
 Entrepreneurs who take to a particular business activity, he
should consider whether proposed business activity satisfy
the social need of the society.
 “Social need” concept considers several societal aspects like
employment for people, improving salary structure, etc.
 It should serve the cause of society and should not be
obstacle for value maintenance of society.

Social Cost – benefit analysis considers –
i) Estimation of cost and benefits which will accrue to
individual members of society.
ii) Costs and benefits accrue to the community.
iii) Costs and benefits accrue to the entrepreneur over a period
of time to determine feasibility of proposed business activity.
 Social cost – benefit analysis is very significant tool to
assess social feasibility of business proposition.
 Entrepreneurs has to take tactical decision in order to know
about social cost benefit which will enhance their
contribution to the society.
 His business should help the society in enhancing social
values and returns.
Unit 3 – Venturing Small Business 48

FINANCE MOBILISATION /
RESOURCE
Resource of Funds:
Types of Loans:
1) Short-term finance:
- less than 1 year for day-to-day operation of firm.
- Cash credit & Bills purchase.
2) Medium term finance: (Period – 1 to 5 Years)
- Issues of share, debentures.
- Borrowing from banks.
- Profits.
3) Long term finance:
- Land / site. - Building & Plant & Machinery.
- Expenses, Equipment etc.

A) Commercial Banks:
* Role of Banks.
* RBI – 1st April, 1935 by RBI Act, 1934 & Nationalized in
1948.
* Commercial banks – 45,000 branches & 8000 Regional
Rural banks in 280 districts.
B) All India lending Institutions:
1) IDBI (1964 July) – Industrial Development Bank of
India:
Principle:
– act as principle of development bank, promotion &
development agency
ROLE OF FINANCIAL INSTITUTIONS

Policy & strategy :
- to activate & spread development impulse in all region
- to widen the entrepreneur activities.
- promote ED in b/w area, small/medium sector
- encourage new entrepreneur, development of entrepreneur.
Objectives:
- to activate development activity of national economy.
- to encourage effective of Entrepreneurship Development.
Sources of funds:
- Issue of share capital, Borrowings from RBI, Repayment by
borrowers.
* SIDBI – Act or Parliament & with subsidiary of IDBI.
- 5 Regional offices - 21 branches.

Activities:
- Refinancing of loans, Discounting of Bills, Extension of
seed capital,
- Service like leasing, Financial support to National Small
Industries.
* Procedure for availing Loan / Refinance.
Schemes:
1.General scheme.
2.Composite loan scheme.
3.Scheme for SC / ST & physically handicapped.
4.Specific scheme.
5.National Equity Fund Scheme (NEFS).

2) IFCI – Indian Finance Corporation of India:
* In 1918 – long term credit for medium / large firm.
* Direct financing – Rupee loans, Shares & debentures.
- Sub-loans in foreign currency, Payment.
Activities:
a) undertake R & D survey.
b) provide technical & administration assistance.
c) undertake merchant banking operations.
Promotional activities:
- to fill gap in infrastructure.
- to provide guidance in formulation, implementation and
operation.
- to improve productivity, Human resource.
Objectives:
- to enlarge firm both in corporate / co-operative sectors.
- guidance / support for project formulation & evaluation. 53

3) ICICI – Industrial credit and Investment Corporation of
India:
* In 1955 – to encourage & assist investment & industrial
development in India.
Objectives:
- to meet needs of industries for permanent & long term funds.
- to assist in creation / expansion of industries.
- to encourage / promote ownership / capital.
Financial Assistance:
- provide in underwriting public / private issues.
- direct subscription to securities.
- provide loan in rupee & repayable within 15 year.
- credit facilities, leasing equipment.
Promotional Activities:
- to set up project promotion department to provide financial &
Promotional services to develop a project in backward area. 54

4) IRBI – Industrial Rehabilitation Bank of India:
- By Act of Parliament in 20 March,1985.
- provide credit for expansion, modernization.
5) EXIM – Export – Import Bank of India:
Financial Program:
- term loan for Export production.
- overseas Investment finance, Finance for Export
marketing.
- overseas buyers credit.
- preshipment credit.
6) NABARD – National Bank for Agricultural & Rural
Development:
* In July 1982 – provide refinance assistance to state / rural
areas.

OTHER FINANCIAL INSTITUTIONS
1. SFC – State Financial Corporation (1960).
2. SSIC – State level Small Industries Corporation.
3. NSIC – national Small Industries Corporation(1955).
- to provide support for SSI.
- to provide technical assistances, supply of raw material.
- support for market development.
4) TIIC – Tamilnadu Industrial Investment Corporation
Limited:
* In 1st Sep,1949 – 53% of TN government & remaining
Pondicherry government.
Scheme: - Medium scale units, SSI, Technocrats.
- Soft loan and seed capital, Funds for buying equipment.

Eligibility:
- Joint stock company, Partnership.
- Public limited company (less than one lakh).
- Loan for Working capital purpose.
Quantum of Assistance:
i) Loans – Mini. Limit Rs. 5000/- & Max. Rs. 30 lakhs.
ii) Deferred payment – Max. limit Rs. 30 lakhs.
iii) Underwriting – Max. limit Rs. 25 lakhs.
Condition for sanction:
i) Repayment holiday – 1 to 2 year.
ii) Repayment period – 8 to 10 half yearly installment.
iii) Deferred payment guarantee commission – 2% per annum.
iv) Underwriting commission – 25% of payable amount.
v) Commitment charges – 1% in backward area. 57

Various Financial norms:
1) Debt – equity ratio.
* For medium – 2 : 1
* For SSI – 3 : 1
2) Promoter’s contribution.
* Technical Entrepreneur – 15%
* Backward area – 17.5%
* Non backward area – 20%
3) Margin of security.
* 25% of fixed assets.
4) Deferred payment guarantee – 25%
5) Personal guarantee.
6) Security documents.

SOURCES OF FUND FLOW
Funds flow from organized sector & non-banking
intermediaries:
- 7 non banking intermediaries.
1) Public Sector Financial Institution:
- In 1947 by India & State Government, to help large,
medium & small units.
- IFCI, ICICI, SFC, IDBI & IRCI.
2) Investment Trusts:
“ type of Financial Institution which mobilizes fund by sale
of own securities & invests those funds in securities of other
company & government.”

Services rendered by IT:
a) Service to Industries Investors:
- save small investors by analyzing merits & demerits of
securities.
- offer protection to small investors, provide expert advice to
invest funds.
- look interest of people who have lack of education / ability.
b) Service to Society:
- help to mobilize small savings for industry & economic
development.
- promote business ability.
- promote growth of planned firm by concentrating on
investments.

3) Hire Purchase Financial Institution:
Features:
- better development & organization in southern region &
other area.
- large no. of individuals & partnership in this field.
- demand of hire purchase credit.
- small hire purchase have practices in charging acc. to R.I.
4) Chit Funds:
i) Simple Chit. ii) Prize Chit.
iii) Business Chit.
5) Leasing Companies:
Two types;
i) Operating and ii) Finance.

Benefits:
- buy through borrowed funds.
- high borrowing capacity.
- it help to put funds for development & marketing.
- more expensive for purchase of equipment.
- leasing contract done acc. to lessee.
6) Loans and Finance Companies:
- In Gujarat & Karnataka.
- Capital less than 1 lakh.
7) NIDHIS:
- By Indian Company Act.
- Nominal share.
6
2Unit 4 – Entrepreneurship DevelopmentUnit 3 – Venturing Small Business 62

Entrepreneurship development - Venturing Small Business

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