The need for credit is a mark of a flourishing economy. With the enterprising bug in present-day youth, the trends are driving towards a change of the scholarly and industrial advancement of the country.

There is a requirement for reliable money lenders among small and medium businesses.

Types of business finance 

Equity finance

Equity financing includes selling a stake in your business as a trade-off for cash investment. In contrast to loans, equity finance doesn’t give a reimbursement commitment.

Instead, investors purchase shares in the organization to bring in cash through profits (a portion of the benefits) or by, in the end, selling their portions. Equity financing doesn’t require collateral, and the odds of raising a bigger sum are far more noteworthy. 

In this way, if you’ve had MSME registration done for your business, you can avail credit without collateral. One of the most amazing MSME registration benefits to give collateral-free loans is provided by GOI (Government of India), SIDBI (Small Industries Development Bank of India).

Investors make a profit from their venture if the organization is successful.

Benefits of equity finance

 You might have the option to begin and develop your business utilizing your own reserve funds and income created from deals. Be that as it may, this can frequently consume most of the day.

With equity funding, you could develop a lot greater and quicker, empowering you to acquire an upper hand in rapidly moving business sectors.

Here are the benefits of equity financing:

• More capital – You can collect larger amounts of cash with equity finance as compared to debt finance.
• Business experience, abilities, and reach – Some money lenders will bring considerably more than just cash. They’ll offer added benefits as expertise, information, and contacts, which can assist with your business development.
• Less burden – With equity financing, there is no credit to reimburse. The business doesn’t need to make a monthly credit installment which can be important if the business doesn’t at first create a benefit. Thus, this allows you to channel more cash into your developing business.
• No credit issues – If you need reliability, through a helpless record as a consumer or absence of monetary history, equity can be best or more reasonable than debt financing.
• Learn and gain from accomplices – You may shape casual organizations with more learned or experienced people with equity financing. Some may be highly associated, permitting your business to profit from their insight and their business organization conceivably.

Debt finance

Debt financing happens when an organization fund-raises by selling debt instruments, most regularly as bank credits or securities. Such sort of financing is also known as financial leverage.

Because of taking extra debt, the organization guarantees to reimburse the credit and causes the expense of interest. It would then be able to utilize the acquired cash to pay for huge capital consumptions or assets of its working capital.

Generally, grounded organizations that show consistent deals, strong security, and are beneficial will depend on debt financing.

Then again, new small businesses that face vulnerability later on or companies with high benefits, however lower credit scores, will almost certainly depend on equity financing.

Relatively new businesses need to take a great deal of debt to meet the business strategies in reference to business development in new markets and sectors.

The expense of getting new auxiliaries, employing new labor, and growing the scope of tasks all involve tremendous costs that might drain the capital reserve funds.

Benefits of Debt Financing

Conserve business ownership

One of the major reasons for choosing debt financing over equity financing is to safeguard business ownership. In equity financing, like selling ordinary and preferred shares, the bank holds a value position in the business. The bank then, at that point, gains voting rights, and entrepreneurs weaken their ownership.

Tax-deductible interest payments

One more benefit of debt financing is that the interest paid is tax-deductible. It diminishes business tax commitments. Besides, the principal payment and premium cost are fixed and known, expecting the advance is taken care of at a steady rate.

 Easier planning

You know well how much principal and interest you have to pay every month. This makes it easier to plan and make necessary monetary arrangements.

Lower interest rates

The tax deductions can bring down your business loan costs. You can check the effect of your deductions on your bank loan costs. In this way, your moneylender charges you 10%, and the government charges you 30%; it’ll be beneficial to take a loan you can deduct.

Business finance opportunities

Business finance covers a wide exhibit of business opportunities. Most companies in the finance business find their specialty in tax preparation and duty counseling.

They help people and different businesses explore the laws and guidelines encompassing individual and corporate charges. These organizations can be run all year, yet the uptick truly starts toward the start of the year in anticipation of tax season.

Many organizations, small businesses, specifically, will re-evaluate their financial requirements, and that is the place where numerous business opportunities come in.

Companies in business finance are popular as financial businesses furnish people and organizations with monetary and accounting facilities that are important to maintain their lives and their businesses running smoothly and quickly.

Frequently Asked Questions

What is meant by business financing?

Business finance refers to funds availed by business owners to meet their needs that may include commencing a business, obtaining top-up funds to finance business operations, obtaining finance to purchase capital assets for the business, or to deal with a sudden cash crunch faced by the business.

What are the types of business finance?

Here are the top business finances:
1) Debt Finance
2) Asset-Based Lending
3) Equity Finance
4) Mezzanine Finance
5) Capital Raising Funds
6) Relatives and Friends
7) Angels Investor
8) Personal Equity Placements

What is the example of business finance?

Examples include buying and selling products (or assets), issuing stocks, initiating loans, and maintaining accounts. When a company sells shares and makes debt repayments, these are both financial activities.

What is the role of business finance?

Business finance, also known as corporate finance in the business world, is responsible for allocating resources, creating economic forecasts, reviewing opportunities for equity and debt financing, and other functions within your organization.

How does business finance work?

Most small business funding falls into one of two categories: Debt: where you borrow an amount of money and pay it back, usually with interest. Equity finance: where you get funds by selling a share of your business to investors.

Small Scale Industries are those industrial undertakings having a fixed investment in plant and machinery, whether held on an ownership basis or a lease basis or a hire purchase basis and not exceeding Rs.1 crore. It has a larger contribution to the growth of an economy. However, this investment money is varied by the Government from time to time.

A small scale unit is normally a one-man show and even in the case of a partnership the activities are mainly carried out by the active partner and the rest are sleeping partners. The area of operation of small units is localized, catering to the local or regional demand. Small industries are fairly intensive with comparatively smaller capital investment than the larger units. Therefore, these units are more suited for economics where capital is scarce, and there is an abundant supply of labor. The Ministry of Small Scale Industries has now merged with the Ministry of Agro and Rural Industries to form the Ministry of Micro, Small, and Medium Enterprises (MSME).

Registration of Small Scale Industries

One of the advantages of small scale industries is that they are more flexible to adapt to changes to the new method of production, the introduction of new products, etc. Small scale units as compared to large scale units are more change susceptible and highly reactive and responsive to socio-economic conditions. The objective of small scale industries is to adapt to the latest technology and to produce better quality products at lower costs.

Even in this type of business, registration is voluntary and not compulsory. But, its registration with the State Directorate or Commissioner of industries or DIC’s makes the unit eligible for availing different types of Government assistance like financial assistance from the Department of Industries, medium and long terms loans from State Financial Corporations and other commercial banks, machinery on hire-purchase basis from the National Small Industries Corporation, etc.

Two types of registration are done in all States.

• Firstly, a provisional registration certificate is given, i.e., valid for normally five years and after the commencement of production, a permanent certificate is given, i.e., in perpetuity.
• Once the company is being registered as an SSI, it can avail several benefits such as cheap Bank Finance, exemption from Sales Tax, exemption from Excise Duty, ease in getting licenses and permissions, capital subsidy, ISO-9000 Certification reimbursement, reduced customs duty and several other benefits provided by the State Government.[1]

Procedures for Setting Up of a Small Scale Business

Small Scale Business provides more independence than the large scale business and through this type of business one can fulfill their dream to become an entrepreneur. It eliminates much of the overhead expense and extensive planning required in larger business ventures. One can set up small-scale industries by following the simple procedures, which are as follows:[2]

Decision Making: First of all, you need to prepare the description for the small scale industry you want to set up. It is necessary to decide whether you wish to set up a corporation, proprietorship or partnership. The potential entrepreneur has to analyze his strength, weakness while deciding for entrepreneur career. This analysis helps in knowing what type and size of business would be the most suitable.

Scanning Of Business Environment: Before setting up your industry, it is always essential to study and understand the prevailing business environment in which they operate particularly the industrial policy, economic policy, licensing policy, legal environment, and technological environment. The environment impacts a lot in setting up a proper industry.

Product Selection: You need to decide the product you wish to manufacture or the service you wish to offer. While choosing the product or service you want to offer, you must conduct a good market research and learn about the prevailing competition in the market.

Location: You need to choose a location to set up your small scale industry. While choosing the location such factors such as nearness to market, sources of material availability of raw materials, labor, transportation services, modern infrastructural facilities and other things are considered. Location determines the success or failure of the enterprise.

Technology: To manufacture any item, technology is used. The entrepreneur should collect information on all available technologies, and the most suitable one should be identified. This will also be useful to determine the type of machinery and equipment to be installed.

Project: Project appraisal means the assessment of a project. It is a technique for ex-ante analysis of a scheme or project while preparing to set up an enterprise; the entrepreneur has to appraise the project carefully from the standpoint of economic, financial, technical, market, social and managerial aspects to arrive at the most socially-feasible enterprise.

Finance: Finance is the lifeblood of the enterprise. So, the next big step is to arrange for finance. No business can be created, with zero capital. If you don’t have enough finance and then the best way is to borrow or take a loan.

Provisional Registration: It is always worthwhile to get the unit registered with the government. The entrepreneur has to obtain the prescribed application from DIC or Directorate of Industries. After having duly filled in the application form, he has to submit the application with all relevant documents in the local DIC or Directorate of Industries.

Production Management: Production management is the next step, once you can start your small scale industry. This includes allocating space for different operations and choosing your production methods. You are required to purchase machinery and hire employees and workers for different departments.

Power And Water Connection: The sites where the enterprise will be located should either have adequate power connections, or it should be arranged. The entrepreneur can calculate the total power requirement and determine the nearest pole from which power will be given to the enterprise, as it can materially affect the installation cost.

Installation Of Machinery: Once the above formalities have been completed; the next step is to procure machinery and begin its installation as per the plant layout.

Insurance: It is necessary to have adequate insurance for fixed assets at this stage and later on for the current assets as well.

Recruitment Of Manpower: Once machines are installed, the need for manpower arises to run them. So, the quantum and type of manpower are to be decided. The sources of getting desired labor are also important. This follows the recruitment, training, and placement.

If you want to learn more about Industrial and Labour laws, you can take up this course that is created by iPleaders in association with National University of Juridical Sciences (NUJS), Kolkata which is regularly ranked as one of India’s top three law schools.

Production: The unit established should have an organizational set-up. To operate optimally, the organization should employ its manpower, machinery, and methods effectively. There should not be any wastage of manpower, machinery, and materials. If items are exported, then the product and its packaging must be attractive.

Marketing: Marketing is the most important activity as far as the entrepreneurial development is concerned. Marketing and business advertising form the next big step of setting up a small scale industry. Online business directories and various traditional forms of advertising can gain exposure for your business. Prices for your products or services are decided to keep in mind the profit margin.

Quality Assurance: Before marketing, the product quality certification from BIS (Bureau of Indian Standard)/ AGMARK/HALLMARK, etc., should be obtained depending upon the product. If there are no quality standards specified for the products, the entrepreneur should evolve his quality control parameters.

Permanent Registration: After the small scale unit goes into production and marketing, it becomes eligible to get permanent registration based on its provisional registration from the DIC or Directorate of Industries.

Market Research: Once the product or service is introduced in the market, there is strong need for continuous market research to assess needs and areas for modification, up gradation and growth.

Monitoring: Periodical monitoring and evaluation not only of markets but also production, quality, and profitability help in knowing where the firm stands in comparison to performance envisaged in the business plan. It also identifies the direction of future growth. Therefore, planning is a useful aspect of setting up a small scale. According to business, at every stage, you are required to improve your plan.

Conclusion

It can be concluded that setting up small scale industries is not a difficult task. The procedure of small scale industries is simple and easy than the large scale industries. So, if one wants to set up an industry, one can surely go for it. It is profitable, easier and helps in the growth of the economy of the country.

However, money and social media are often the keys to the growth of many small businesses. While many businesses start out with high expectations, funding serves as a major barrier to success.

What is meant by small-scale industries?

A small-scale industry is where the provision, structure, and production of services are made on a small scale. Millions of people are a part of small businesses in India and businesses that import their products into the country.

The Small, Medium, and Medium Business Development Act of 2006 defines and categorizes sub-sectors such as MSMEs. These sectors are based on investments in plant and equipment in the manufacturing sector and on investment in resources in the service sector industries.

Today, the government encourages most of these small industries through grants, MSME loans, and finances. 

Small-scale industries play an important role in India, as they have taken India to a higher level in the industrial world. The  MSME registration online has made registration steps easy for industrialists.

Top 9 Most Profitable Small Scale Industries in India 2021

Here are some of the most profitable small-scale industries in India:

Papads

The industries that produce Papads and Fritters are the most profitable options for those who want to own a business in South Asia, especially in India.

The shelf life of papad is 2.5 to 3 months, and you can produce a variety of products. The biggest customers are usually hostels, hotels, and restaurants. The value of the papad market in India is estimated at around 1000 crores.

Incense sticks

India is globally the largest producer of incense sticks and exports products to several countries. The agarbatti or incense market is expected to grow by more than 8% CAGR depending on volume over the next few years.

Due to the growth in the number of people performing self-medication, there has been a growth in the demand for pharma grade camphor among Indians.

However, 98% of the camphor used in India is for religious purposes. Agarbatti making is an evergreen profitable business that one can easily set up with little investment.

Spices

Indian cuisine is highly dependent on a variety of spices. Therefore, the demand for spices will always be high. However, the spice market in India is so large that it caters to international needs.

In the 2020 financial year, spices worth US $ 3.65 billion were exported from India. The profitable industry is growing at a rate of 40000 crores every year.

Phenyl or Floor Cleaner

Phenyl is a moderate cleaning agent that is widely used in homes, hospitals, restaurants, and factories. Although the market has seen the introduction of many products as alternatives, phenyl continues to be the most widely used.

It is one of the best small manufacturing businesses that can help you make lots of money with little investment.

Chips and snacks

Potato chips and banana chips are some of India’s most widely consumed snacks. Currently, small towns have also become a strong market for the production of chips.

The size of the overall food market is estimated to be close to Rs. 45 to 50 billion easily. The market is reported to be growing at 7 to 8% per annum. India produces two types of snacks, traditional such as chanachur or bhujia and international like chips.

Dairy Products

India has various dairy products ranging from milk and curd to processed products such as paneer. With the growing awareness of the health benefits of high-quality dairy products, there is a great need for low-fat dairy products.

Cottage Cheese, better known as paneer, is one of the most widely used dairy products in dishes, especially in North India.

Handloom Industry

The handicraft or handloom industry is one of the largest small-scale industrial enterprises. Small industries face many difficulties but continue to thrive due to the availability and quality of products. With encouraging programs like Make in India, we can hope to see the industry thrive.

Sanitary Napkins

Sanitary Napkins is one of the most popular options among small businesses run by the NGO. It provides a dual-use service in many rural areas by providing employment for women as well as raising awareness of the use of safe and hygienic clothing.

These industries are also gaining attention on the silver screen with the release of movies like Padman. The set-up of these industries will require approximately 3- 35 lakhs depending on the unit size, equipment, and the number of employees. In fact, it is the best small business idea that isn’t going anywhere soon.

Coconut Oil

Coconut oil is used by different people to cook food. It is not only used in kitchens. In fact, it is also used in the production of oil, hair tonics, soaps, cosmetics, etc.

This can be a very practical business investment as you can start it for as little as 1 Lakh. If the right standards and quality are maintained, you can sell not only in the local market but also in the international market and earn decent money.  

Due to the growing awareness of naturally prepared fats among humans, its demand has grown exponentially. You can start it in your own home if you have a vacant lot or rent a small place to start a business. 

Final Words!

Now, it has become very simple to own a small-scale industry and be an entrepreneur in India. Just by some simple steps, you can do MSME registration online for an MSME loan or for a machinery loan.  

Since the P.M has appealed to be self-dependent and self-employed by the policy, Aatmanirbhar Bharat Rojgar Yojana (ABRY), entrepreneurship has reached new heights, and since then, it can be seen going in almost every part of the country.

Hence, financial organizations and institutes are also coming forward in order to help such entrepreneurs and small-scale industrialists grow by offering them MSME loans at a very low rate of interest and with the ease of registration period.

Frequently Asked Questions

Which small scale industry is profitable?

The answer is not easy but the consumption of ice cream has grossly increased over the few years. Icecream cone manufacturing business is amongst the most profitable small scale business in India. An ice cream cone manufacturing unit can be set up in a small space with a meager investment of 1 to 1.5 lakh rupees.

Which manufacturing business is most profitable?

Here are some most profitable businesses in India:
1) Plastic Bottle Manufacturing
2) Jams/Jellies/Marmalades Making
3) Candle Making
4) Sports Items Manufacturing
5) Biscuits Manufacturing
6) Hair Oil Manufacturing
7) Detergent and soap Manufacturing
8) Manufacturing of Paper

How can I start a small industry?

Here are some smart tips to start a small scale industry in India
1) Product Selection
2) Location of the Enterprise
3) The pattern of the Organisation
4) Project Appraisal
5) Registration with Authorities

What small scale business can I start?

There are a variety of best small-scale industries for those interested in starting their businesses.
1) Cake Baking Business
2) Candle Making Manufacturing Business
3) Pickles
4) Incense Sticks or Agarbattis and Camphors
5) Handmade Chocolates
6) Papad and Other Roasted/Fried Snacks
7) Jute Bags
8) Organic Soaps