Access To Finance - Barrier to Youth Entrepreneurship Development

When the countries are focussed on creating and nurturing an environment conducive to Youth Entrepreneurship, it becomes imperative to study the current situation, identify the pitfalls and shortcomings and design new strategies to overcome and remove the obstacles and make the path easier and clear for the youth to pursue. The other area of importance happens to be to educate and empower the youth with the required knowledge, skills and training to enable them to become successful entrepreneurs.

When an interest in pursuing a new enterprise or becoming self employed has been generated in a young individual, he or she is likely to attend various courses and equip themselves with the required skill sets and knowledge to start the business. Identifying a good and viable business opportunity and proposition too can happen with a bit of market research and mentoring by the experienced entrepreneurs. When it comes to start the action towards setting up the business enterprise, the next set of barriers or obstacles will need to be surmounted. These barriers are mainly to do with financing options and documentation requirements. As the youth are inexperienced, they are unable to cope up with the requirements and find it difficult to get going smoothly.

Financial Barriers

Personal Savings & Borrowings from Family and Friends

In most cases the youth do not have any avenues for saving money and accumulating the margin money needed for business. They are often required to raise the initial capital through the support of family and friends. In such cases the amount of funds that can be put together would be meagre and not sufficient to get going. Very often the youth would have to repay the education loan taken for funding their studies and hence will already be in debt servicing mode leaving no possibilities for saving any money. Such youth are not considered to be safe and are perceived to be potential risk by the bankers.

Even if the youth has a very good business opportunity, the required technical knowledge and other capabilities to make it a success, financing the business becomes a major hurdle.

Borrowing From FI & Banks

The next option for the youth to finance their business venture is to approach banks and financial institutions to raise the required capital in the form of loan.

• Borrowing from Commercial Financial institution calls for providing personal securities and guarantees. Normally youth will not be in a position to provide such securities and will not have the personal credibility to be eligible for securing loans easily.
• In most cases youth lack the knowledge of debt financing, working capital management and the overall impact of financial management. It is quite possible that their financial estimates could be way off the mark. They can get carried away and plan a higher estimate or under estimate the capital requirement due to in experience.
• Banks and financial institutions as well as the other funding agencies are found to be very strict and conservative in processing the applications, ascertaining eligibility of the borrower and tend to be very stringent in their approach to funding the Youth in their first venture.
• Time taken to obtain financial support and to complete the required documentation can cause a lot of delay. If the time taken to process runs into a couple of months, the business plans of the Young Entrepreneur will definitely get affected.
• Lack of knowledge of legal procedures to start an enterprise and the required licenses, permits etc cause in-ordinate delays in documentation when it comes to loan processing by the banks.

Overall, the youth find it very difficult to access finances for their start up ventures. Sometimes such difficulties can kill the entrepreneurial spirit or one could end up losing the business opportunity due to inordinate delays in arranging funding to kick start the business. This is the area where the Governments can get involved and help make it easier by providing solutions through special seed funding agencies, micro financing organisations and similar such networks that can back up the first time ventures of Young Entrepreneurs.

Authorship/Referencing - About the Author(s)

The article is Written and Reviewed by Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.