A few days, I found a small but beautiful query, loaded with sensitively emotional style of expression, from a reader in my inbox. ‘Loan Lay Nay Kay Liyai Current Account Kholna Zaroori Hy Kya’. (Is it mandatory to open a current account to obtain a loan). The guy is a small entrepreneur, running a stationery shop in his vicinity ( as revealed through his mail) and had approached the bank for some low ticket size financial assistance, not more than Rs.2 lakhs.
Though he was having a savings bank account, he was asked by his bank branch to open a current account to qualify for any loan assistance. The bank official ‘advised’ him to route all his business transactions through the current account and after six months he would be eligible for assessment of a loan facility. This is what irritated him and questioned the norm of current account as a precursor to a loan facility.
Before coming to the norm of current account for business transactions, let it be clear that for small businesses like the one mentioned above, there is no requirement of having a current account to access loan facility in a bank. As a sole trader in small entreprises segment, you are not legally required to have such a business account. You are legally eligible to use your Savings Bank Account for both business and non-business transactions. You also have the option of having another Savings Bank Account for use of your business dealings. However, it would be better to have a single account for ease of doing business.
As far as running business transactions through a Current Account are concerned, you can enjoy a wide range of flexibility in conducting transactions. Unlike Savings Bank Account, you don’t have curbs on number of transactions. This means the transactions are allowed daily or hourly also. You can also avail Overdraft facility which gives you the flexibility to conduct a business transaction even if there is no money in your Account. Notably, Overdraft facility is a loan for a very less period and is to be adjusted within the agreed time.
Over a period of time, the Current Account reflects the financial nature and pure strength of your enterprise. It guides your banker to extend timely and hassle free funding to you for expansion of the business.
Now coming to the concern of small businesses segment being denied loan facility, which is usually small ticket size, availability of timely and appropriate finance has always remained a key factor to its success. We have observed that the flow of credit from banks or other financial institutions has not been a problem to big businesses. However, financial support from the formal banking system to small borrowers especially persons of small means has always remained a concern.
Ours is a place having the biggest economic strength in hugely spread small enterprises. The state has almost 5 lakh small enterprises in horticulture, crafts, tourism and other sectors. There are certain kinds of imbalances in the system which have not allowed this sector to grow the way it should have been. However, we have stories in business ventures, particularly small businesses that have adopted ’embrace the conflict’ attitude and have survived successfully. Keeping general rules apart, these small businesses have time and again been working as partners – a way of working between people that makes a difference differently.
Notably, the people associated with this small enterprise sector are the ones who have survived worst conflict situations. So what is needed is to scale them up so that this sector expands and generates more employment opportunities. For this it’s the technology, marketing and above all availability of hassle free finance which can give boost to this sector.
Meanwhile, we have MUDRA (Micro Units Development & Refinance Agency) schemes to explore the untapped potential of small businesses’. The loans under the scheme range from Rs.50,000 to Rs. 10 lakhs, that too, without any collateral security.
Lastly, coming back to the query – ‘Loan Lay Nay Kay Liyai Current Account Kholna Zaroori Hy Kya’ , J&K Bank has a scheme in place which was tailored years back to lend financial support to small enterprises without any need to open Current Account. The scheme allows the small entrepreneur to use personal savings account for the purpose of business transactions and loan up to Rs 3 lakh are granted without much documentation. Remarkably, even street vendors are eligible to avail loan facility for running their businesses.
(The views are of the author and not that of the institution he works for)
sajjadbazaz@greaterkashmir.com