5 Main Problems faced by Small Scale Industries

Just because of their nature and size, small-scale industries do not have many of the advantages that large-scale firms do. They have contributed significantly to economic development, but they have not reached their full potential. They have a lot of issues with how they operate, and a lot of small businesses are sick.

Certain commodities were set aside by the government for exclusive production by Small Scale Industries. Large-scale businesses were not permitted to create commodities reserved for the SSI sector. Many things have been successively De-reserved as the economy has opened up and followed the principles of liberalization and globalization. As a result, small-scale industries must now contend with the dual pressures of rivalry from both Indian large-scale firms and overseas competitors.

In this blog, we are going to learn about the problems faced by Small Scale Industries.

Problems of Small Scale Industries

1. Funding Shortage

When it comes to fundraising, small businesses confront numerous challenges. It is one of the most serious issues. Many of these businesses are unable to raise cash from the capital market due to a lack of creditworthiness. Banks are also wary of lending money to these businesses because many of them lack proper collateral security or guarantees.

A lack of cash can cause a small firm to fail before it even gets off the ground. Following nationalization, several banks make loans to these types of businesses. The situation is still deteriorating due to the sudden outbreak of covid-19, which resulted in a lockdown and a drop in the economy. Entrepreneurs are obliged to seek funds from money lenders at unreasonably high-interest rates, which throws their business calculations into disarray.

2. Idle Capacity 

In the case of small-scale industries, installed capacity is underutilized to the tune of 40 to 50 percent. Various factors contribute to this underutilization, including a lack of raw materials, a lack of cash, and even a lack of power. Small scale units, unlike their large-scale counterparts, are not completely able to deal with all of these issues.

3. Management abilities

A tiny business is started and run by a single person. As a result, that person may lack all of the managerial skills required to run a business. They cannot afford to hire competent managers or staff due to a lack of finances. This can cause minor disruptions in the business’s operations. Delays, errors, poor decision-making, and other factors can all contribute to the company’s demise. This could also be considered unprofessional behavior on the part of the client, which is bad for the company’s market reputation. All of these requirements are easily met in major corporations thanks to various specialized teams.

4. Sickness

It’s heartbreaking to see the majority of the small units succumb to illness. There is a lack of forethought. Another stumbling block is the lack of qualified and trained employees. They have no choice but to sell on credit. Their clients fail to pay them on schedule. There are a lot of terrible debts. As a result, they are unable to maintain the production process due to a lack of operating capital. This results in illness.

5. Unpredictable raw material supply

Small businesses have a difficult time obtaining raw materials, whether they use locally available or imported raw resources. The issues develop as a result of defective and irregular raw material delivery. Other obstacles for the small-scale sector include a lack of sufficient quantities of raw materials, occasionally poor quality of raw materials, rising raw material costs, foreign exchange crisis, and, most importantly, entrepreneurs’ lack of awareness of government policies.


Small-scale entrepreneurs face a slew of issues, including excessive reliance on institutional agencies for finances and consulting services, a lack of creditworthiness, a lack of education and training, reduced profitability, and a slew of marketing and other issues. The Indian government has launched a number of initiatives targeted at enhancing the overall performance of these institutions.