Answer in Brief
High Order Thinking Skills
Discuss the advantages and disadvantages of financial institutions for an entrepreneur.
Advantages of financial institutions for an entrepreneur
- Borrowing money from the bank is one of the simplest ways to get needed funds to start or grow your business.
- To grant loans and advances.
- To underwrite or to subscribe to shares or debentures of industrial concerns.
- To guarantee loans raised by industrial concerns in the market.
- To provide consultancy and merchant banking services in or outside India.
- To provide technical, legal, marketing and administrative assistance to any industrial concern or person for promotion, management or expansion of any industry.
- Co-ordination, regulation and supervision of the working of other financial institutions such as IFCI, ICICI.
- To act as trustee for the holders of debentures or other securities.
- To provide long and medium-term credit to industrial concerns engaged in manufacturing, mining, shipping and electricity generation and distribution.
- 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.
- 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:
- State Financial Corporations only provide long and medium-term loan repayment ordinarily within a period not exceeding 20 years.
- 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.
- Rate of interest is too high sometimes not able to pay the debt amount and its interest.
Concept: Specialised Financial Institutions
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