SBI advices SMEs to opt for equity capital rather than debt

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The chairman of State Bank of India, Arundhati Bhattacharya, insisted small and medium enterprises (SMEs) to raise funds through equity as an alternative to debt in order to conduct business effectively. She further adds that SMEs that opt for debt in the initial stages places an enormous burden on their balance sheet.SBI Home Loan Segment

“One of the major problems facing SMEs in our country is lack of equity. Equity capital is a much-neglected area in the SME sector,” Arundhati said at a SME summit. She also pointed out technology companies in the industry that boosted their business using equity. The e-commerce giants, Amazon and Flipkart too did wonders with the help of equity and Arundhati Bhattacharya advised SMEs to learn from these businesses.

There is an abundance of investors willing to invest in a business but a business owner would have to be knowledgeable on how to persuade them into investing. She said, “There are people who can give you equity but you should know how to convince them that you are the right person who can give them good returns if they invested in his/her company.”

Addressing the same, M.S Sahoo, chairman of Insolvency and Bankruptcy Board of India, said that the board will very quickly prepare an insolvency structure for small and medium enterprises.

With the current insolvency structure equipped to handle only corporate insolvency, more than 95% of SMEs who are individuals are not covered under this. Sahoo is delighted to change this paradigm and says that the insolvency system for SMEs will consist of two phases.

Regarding the phases he says, “In the first phase, we are looking at guarantees to corporates–individuals who have given guarantees on behalf of corporates. In the second stage, we will look at individuals who have some kind of businesses, proprietorships/partnership or a non-corporate form of business which should cover the MSMEs.”

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