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High handling cost in SME lending

   

Added on  2020-10-22

14 Pages3319 Words439 Views
Static Growth in SME lending1
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Table of ContentsTASK...............................................................................................................................................3High handling cost..................................................................................................................3SME operational efficiency in processing bank applications.................................................5Credit score Risk assessment in SME lending.......................................................................7SME OPERATIONAL EFFICENCY IN PROCESSING CREDIT APPLICATIONS........8Turn around time..................................................................................................................10Customer delays...................................................................................................................11REFERENCES..............................................................................................................................13.......................................................................................................................................................142
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TASKHigh handling costAccording to views of Paradi and Zhu, (2013) it is stated that the term handling costmeans cash paid to cover the cost of performing a transaction, packaging, transporting and moreused in manufacturing process of a product by a company. Generally small companies used torise funds from money lenders, investors and from bank on fixed rate of interest. Over some past years, it has been observed that charges rate of banks are much hiked andincreasing at rapid rate. Therefore, to handle such type of lending by small companies are sodifficult which affects performance of business. In context with small lending companies, theyused to provide loan to other firms and individuals for their business on easy terms and conditionfrom established banks. Management of these organisations are needed to control internal rates of banks so thatthey can attract more customers to provide loan to them on small rates. This would help them ingenerating more profit.With the change in course of time, technology has changed different kinds of lendingindustry process and made this easier (Brooks and Mukherjee, 2013). Now SMEs can take loanseasily. There are some of the criteria that company can think while doing this entire process. No need to borrow money which cannot be repay: While borrowing loan, first thing thatshould be kept in mind is of time under which company can repay this money that was taken. Forexample: while taking a personal loan EMI for this must not be more that 10% according to thenet monthly income. 3
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Keeping tenure for short period of time: While taking loan long term repay systemshould be avoided as with the increase in durations interest rates may gets higher which smallscale industries can find it difficult in paying the same. Ensure timely and regular repayment: In case of repayment of dues, management ofSME are required to pay the same in disciplined manner. They should not miss such kinds ofpayments which are linked with short-term and long-term loan for business. Don't borrow to invest: It concerns with basic rules of investing which forbade smallfirms to use borrowed money for invest purpose (Wagner, Beimborn and Weitzel, 2014). Inaddition to this, ultra-safe investments such as fixed deposits, bonds and more also not needed touse for loan payment.In a country, SMEs are considered as the backbone in context with economicdevelopment. As per Moro and Fink, (2013), it has stated that about 97% to 99% of totalorganisations running in UK, SMEs help in making this nation as best among top ten competitivecountries. As per incomplete characteristics of market information in terms of credit, SME facedifferent problems related to credit rationing. It results to low economic status of such companies and ambiguous information structurethrough which small firms are often subject to demanding credit constraints as compared to thoseorganisations which operate at large level. To overcome from this kind of issues, management ofthese companies apply measures as per approval of public financial bodies for inadequate marketmechanism. It includes policy oriented loans, credit guaranteed scheme supported bygovernment and so on. 4
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