A majority of a small industrial units do not have sufficient finance for purchasing machinery, raw materials, tools etc. Now-a-days, there exist a number of financial institutions run by the Central and State Governments, to help small scale organizations by providing sufficient assistance at reasonable rates of interest. These institutions also provide technical knowledge.
The following are the financial institutions which grant such loans:

  • State Governments.
  • State Financial Corporations.
  • Nationalised Banks.
  • State Industrial Co-operative Banks.


State Governments

Almost all the State Governments in India grant loans for the following purposes:

  • Construction of factory buildings.
  • Acquiring land for the purpose of establishing industries.
  • Purchasing raw materials.
  • Erecting plants for purchasing machines and equipments.
  • Working capital.


When loans are granted, the organisation concerned can repay such loan in a given number of equal instalments. The first instalment is paid two years after the date on which such loan is granted. Generally, the rate of interest on this loan is charged at 10 percent per annum. Some rebate is also allowed if the organisation pays the loans instalments regularly.

State Financial Corporations

The State Financial Corporations grant loans at concessional rates of interest to diploma and degree holders (Technical persons). They can get a loan in the range of rupees ten thousand to two lakhs. These loans are granted for the construction of industrial units and for purchasing plants and machinery. These institutions also provide loans for working capital.

Banks

All nationalised banks grant loans to small scale industrial units. The provide loans for fixed capital as well as working capital. Normally, they charge 11 to 13 percent interest rate on these loans. Loans are expected to be repaid within a period of 4 to 5 years.

The State Industrial Co-operative Bank

This is a Government institute which provide loans to Co-operative Societies at a cheaper rate of interest. The loan is to be repaid in easy instalments.

METHOD OF APPLYING FOR LOAN

Applications for loans are to be submitted to District Industries Officer, on a prescribed form. In the case of an Industrial Society, the application is to be submitted to the Assistant Registrar of Co-operative Societies. The application should furnish the following details:

  • Three copies of the detailed scheme specifying the loan applied for.
  • Details of immovable property which the applicant wishes to offer as a security against the loan applied for.
  • An affidavit to the effect that the property proposed to be mortgaged is owned by the applicant or his surety.
  • An affidavit indicating the capital investment in machinery and equipment.
  • Quotations from three standard dealers, showing the prices at which the machinery and equipment can be supplied.