Question

High Order Thinking Skills

Discuss the advantages and disadvantages of financial institutions for an entrepreneur.

Answer 1

Advantages of financial institutions for an entrepreneur

1. Borrowing money from the bank is one of the simplest ways to get needed funds to start or grow your business.
2. To grant loans and advances.
3. To underwrite or to subscribe to shares or debentures of industrial concerns.
4. To guarantee loans raised by industrial concerns in the market.
5.  To provide consultancy and merchant banking services in or outside India.
6. To provide technical, legal, marketing and administrative assistance to any industrial concern or person for promotion, management or expansion of any industry.
7. Co-ordination, regulation and supervision of the working of other financial institutions such as IFCI, ICICI.
8. To act as trustee for the holders of debentures or other securities.
9.  To provide long and medium-term credit to industrial concerns engaged in manufacturing, mining, shipping and electricity generation and distribution.
10. The bank will serve as a financing institution for institutional credit such as long-term, short-term, and for the promotion of activities in rural areas.
11. Provides financial assistance to enterprises for setting up or the development of tourism-related projects.

Disadvantages: Procurement of finance involves risk and formalities to comply:

1. State Financial Corporations only provide long and medium-term loan repayment ordinarily within a period not exceeding 20 years.
2. Some financial institutions provide financial assistance generally to those industrial concerns whose paid up share capital and free reserves do not exceed Rs 3 crore.
3. Rate of interest is too high sometimes not able to pay the debt amount and its interest.