Risks in SME Financing: Experience 3
Mr. Yellow, an SME entrepreneur of business of paddy, with near about $25000 working capital and own business premises, applied for the SME loan in my office. After physical verification I found him to be eligible for a loan of amount $15000, but we had approved $7500 considering risk of over finance.
His business seamed to be highly running and the entrepreneur himself was very cunning and smart. But getting the loan he bought two buses to use as public transport. Thus the fund was diverted to another business which did not come to profit for a long time. As a result the business failed to pay installment in due time and after several installment it fully stopped its activities.
The small business owners having high ambitions may be misguided getting the new fund from loan as a consequence the fund may be diverted to new business for which the entrepreneur does not have enough experience and training, resulting a severe loss of business and poor repayment status of loan.
In this case, we took legal action against the entrepreneur and recovered the full outstanding from their fixed assets. If the entrepreneur did not have sufficient fixed assets then it would be impossible to get the money back.