Financing a Business Magazine Article Essay Example | Topics and Well Written Essays - 2000 words

Financing a Business Magazine Article - Essay Example Even though, in common instances, credit has been rendered to the small businesses of developing countries such as India, Brazil, China, and South African states among others, the small businesses sectors in developed nations including the US and the UK can also be noted as major constituents of economic growth (Mahembe, 2011). Source: (Mahembe, 2011) Enthusiastically, based on these statistical findings and economic affirmations, small businesses have been connoted as the â€Å"powerhouse† and even as â€Å"most powerful engines of growth and jobs† within an economy (Banks, 2012). It is certainly for this particular reason that authoritative bodies, in the global economy today, intends to render greater emphasis and strategic support to these sectors, helping them to grow, sustain and compete. However, in the realistic scenario, these ‘powerhouses’ often have to face various hazards which are mostly concerned with the availability of adequate resources req uired to sustain the business in the long-run. Finance is an important requirement for the formation of any business allowing it to explore and take advantages of opportunities with the purpose of expansion and support to the daily operations. Literally stating, finance is a lubricant for any business to sustain their functions successfully in highly dynamic modern business circumstances (INFLIBNET Centre, 2010). As a matter of fact, without adequate availability of finances, business cannot grow which eventually results in its failure. In the current business scenario, operating environment for small business has become quite challenging fundamentally owing to the increasing complexities influenced by the rapidly altering external environmental elements. In recent times, the government bodies and the financial institutions have realized the importance of small businesses in the development of national economy and thereby have been focusing on rendering support to the sector with a greater motive to augment economic prosperity in the global platform. Contextually, several sources have become available to small businesses today, through which they can meet their financial requirements effectively, e.g. bank lending, mortgages, credit facilities and others (The Economist Intelligence Unit Limited, 2009). However, procurement of finance from various sources itself requires some expenses (Department of Economic Development, Tourism and the Arts, 2011). Additionally, owing to the variances, raising finance for small scale businesses has become more sophisticated than it was earlier. Difficulties in Raising Finance for Small Scale Businesses There are various issues that contribute towards the challenges faced by the small businesses. In relation to this, one of the vital and common issues faced by the small businesses today has been their limited access to adequate finance (Soni, 2005). One of the potential explanations for apparent difficulties experienced by smal l businesses can be related with nominal credit risk management practiced by finance providers. It is completely rational for bank managers to take into account the various risk factors associated with pricing of loans. From the point of view of various banks, loans that have larger default risks or certain loans where borrowers are deemed to fail to meet interest payments have relatively lower chances to be approved. Even though, these requests are approved, lenders often attempt to mitigate such additional risks by issuing loans with shorter maturity period or by minimising the