Question

Blossom Ltd. is a newly established company which faces a challenge of raising additional capital from the public for its long-term needs. Therefore, it approaches SIDBI and SFCs for support. Evaluate any two advantages and any two disadvantages to Blossom Ltd. of raising capital from financial institutions mentioned.

Answer 1

Blossom Ltd. is requesting financial assistance from SFCs (State Financial Corporations) and SIDBI (Small Industries Development Bank of India), which offer funding to companies for sustained expansion. The following are two benefits and two drawbacks of obtaining funding from these organisations:

1. Advantages:
   1. Lower Interest Rates: Compared to commercial banks, financial organisations like SIDBI and SFCs frequently provide loans at cheaper interest rates, making it more inexpensive for Blossom Ltd. to raise money for its long-term requirements.
   2. Long-term Financial Support: Long-term financing alternatives, which are essential for the development and expansion of a recently founded business like Blossom Ltd., are more likely to be offered by SIDBI and SFCs. This enables the business to put less emphasis on immediate financial constraints and more on long-term planning and expansion.
2. Disadvantages:
   1. Complex Documentation and Processing: It takes a long time and a lot of paperwork to raise money from financial institutions like SIDBI and SFCs. Bureaucratic obstacles could cause delays in Blossom Ltd.’s acquisition of the required finances.
   2. Collateral Requirement: Collateral may be needed by SIDBI and SFCs to secure the loan, which could be a problem for Blossom Ltd. if it lacks enough assets to make a pledge. This can jeopardise the company’s assets.