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Challenges of small businesses

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Growth in the small and medium business in Canada and other developed countries has been very

significant. This sector of the business community now represents about 40 percent of GDP and accounts

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more than half of total employment. Today small businesses are more diverse and more vigorous than

ever, but they also faces newer and more challenges or inhibitors to their growth than their older conter

parts. This research will attempt to find the answer to the following hypothetical question:

“What are the barrier to entry, inhibitors to growth, and detriments to the health of small business and entrepreneurship today?”

Access to capital and credit at various stages in the business life cycle is identified as the major

hurdle by the entrepreneurs.

For many small firms and most start-ups, the personal funds of the business

owners and entrepreneur and those of relatives and acquaintances constitute as the major source of capital.

For many small businesses, especially during the early years of their operation, credit is simply not

available. For many others, the limited available credit is not through bank loans. Due to this many of

them rely on multiple credit card balances and home equity loans as major sources of credit for start-up

firm. Because banks are bound by laws and regulations to prudent lending standards that require them a

risk management assessment for each loan made. These regulations were made more vigor during the late

1980” and early 1990 . Banks always found that lending to manufacturing firm with hard asset such as

property, equipment, and inventory has always been easier than lending to today’s expanding service sector

firms. Because the service sector firms own few hard asses, therefor lending judgment have to be based

in terms of character, markets, and cashflow, which make it difficult to the bank to meet the regulations for

the approval of the loan. Additional, the banking industry, as well as the entire financial sector of the

economy, is undergoing rapid change. In the future banking industry will be divided into global, national

and super-regional banks and a much smaller number of community banks. It is expected of these banks

primarily super regional banks and community banks will extend their services to the needs smaller

business through large loan processing centers utilizing credit-scoring techniques and “intelligent models”

(artificial intelligence-derived computer-based models) . These will increase the standards the loan

process. Therefore making the loan available for small business more scare.

Globalization is a major force that modified and molded the environment for small business and

entrepreneurs. Even though it’s interms of identifying foreign markets and foreign sources of supply as

important parts of their strategies for growth and success. But it has continually deteriorating our local

retail small businesses with the introduction of retail giants such as Home Depot, Wal – Mart and etc.

Because of the stiff competition that our small businesses face from the foreign market, it puts extra

pressure on them interms of efficiency, price, quality, cost-control, marketing expertise, customer

satisfaction and innovativeness. But because of lack of capital, credit and skill workers they are not able to

equally competitive with others. Thus they become prey to the ever expanding corporate giants.

For small business entrepreneurs to be successful over the next decade and beyond, and educated

and trained work force must be available. Public school systems are not meeting the needs of the small

business community interms of preparing new labor force entrants with such basic skills as literacy,

math skills, and problem solving skills. Those who go beyond high school education are leaving Canada

and entering our neighboring country work force and experienced and skilled workers we have now are

entering 50’s and 60’s. The lack of proper technical education, brain drain and the aging baby boomers

present yet another challenge to small business owners. That’s is to recruit skilled workers in the future.

Despite all the potential that e-commerce has for the small business users, it also has many

challenges too. E-commerce consists of a wide spectrum of types of business transactions. It can mean

anything from a simple electronic ad that generate a telephone call to the company sales clerk, to a complex

real-time transfer of funds between buyers’ and sellers’ bank accounts . Large corporations find it easy to

adjust to e-commerce from their traditional sales and transaction methods, while small business find they

must structure their entire operations around e-commerce. For business owners who simply want to

purchase products over the web, the process is relatively straightforward. They can use credit cards to

make purchases just like any other consumer. The only consideration that should be taken in this process is

in controlling which staff members should have the authorization to use the card.

But for businesses that wish to sell over the “net”, however, face considerably higher barriers. Computer

system and software development cost can be substantial particularly in custom applications. Ensuring

quick order, a must by consumers, can introduce a completely new infrastructure and cost dimension to the

business. Also because credit card orders are not always guaranteed valid by the banks, the vendor my be

100% liable in case where consumers challenge the validity of a purchase. As a result, banks often require

that e-vendors post high deposits up-front to guard against charge backs. E-commerce also require a whole

new set of employee skills, which add considerably to labor costs.

The extent, complexity and uncertainty associated with regulations were identified as a major

inhibitors of growth for the small business. All sectors of small business faces rigid barriers for entry and

approval for licenses as the result of regulations, these can be from a youth trying to secure a vendor

license to bankers who see the risk associated with environmental laws as limiting their ability to make

loans. It further more complicated when federal, provincial and municipal regulations overlap each other

contradictory standard fashion. Regulations fall more heavily on smaller organizations than larger

organization. Because large enterprises can often hire internal and external help at a reasonable price.

Despite these barriers to small-firm growth, further projections indicate that small businesses and

entrepreneurship would continue to grow and make major contributions interms of job creation,

innovation, empowerment. But if these challenges were removed or eased to manageable standards by the

proper authorities can act as a rebost to this expanding economy. Government can try to ease the small

business owners face interms of capital and credit, by dividing the public grants evenly. Rather than just

giving large chunks away to large corporation, university research and etc. Some of the regulations set

by the government should be abounded or modified to be more size sensitive. Public school should

incorporate skill required courses that would suit the demands of today’s business world. If these

suggestions were taken into consideration or if these barriers were removed the small business will reach

the sky with their innovativeness in the 21st century.


Cite this Challenges of small businesses

Challenges of small businesses. (2018, Jun 25). Retrieved from https://graduateway.com/challenges-of-small-businesses/

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