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SAI INTERNATIONAL SCHOOL

CLASSS XI

SUBJECT: BUSINESS STUDIES

CHAPTER -8, Small business and enterprises

Topics: Problems in small scale business, institutional supports,
incentives

(LESSON NOTES-39)

PROBLEMS OF SMALL BUSINESS

Small scale industries are at a distinct disadvantage as compared to large
scale industries. The scale of operations, availability of finance, ability to use
modern technology, procurement of raw materials is some of these areas.

This gives rise to several problems. Most of these problems can be attributed
to the small size of their business, which prevents them from taking
advantages, which accrue to large business organizations. However, the
problems faced are not similar to all the categories of small businesses.

In general the small businesses are faced with the following problems:

(i) Finance:
One of the severe problems faced by SSIs is that of non availability of
adequate finance to carry out its operations. Generally a small
business begins with a small capital base. Many of the units in the
small sector lack the credit worthiness required to rise as capital from
the capital markets. As a result, they heavily depend on local financial
resources and are frequently the victims of exploitation by the money
lenders.

(ii) Raw materials:
Another major problem of small business is the procurement of raw
materials. If the required materials are not available, they have to
compromise on the quality or have to pay a high price to get good
quality materials.
Their bargaining power is relatively low due to the small quantity of
purchases made by them. Also, they cannot afford to take the risk of