Small scale businesses play a crucial role in the economic development of semi-urban areas by generating employment, supporting local markets, and encouraging entrepreneurship. These enterprises act as a link between rural and urban economies and contribute significantly to income generation at the grassroots level. In semi-urban regions, small business owners often operate with limited capital, unstable demand, and restricted access to modern financial infrastructure. As a result, external finance becomes an essential component for sustaining business activities. Access to credit enables small scale businesses to meet working capital requirements, purchase raw materials, manage inventory, and expand operations. Financial institutions such as banks, cooperative societies, and non-banking financial companies provide various loan products aimed at supporting small enterprises. However, due to procedural complexities, collateral requirements, and limited financial awareness, many small business owners face difficulties in accessing affordable institutional finance. This situation often compels them to rely on high-cost informal sources of credit. Excessive dependence on borrowed funds leads to loan burden, wherein a substantial portion of business income is allocated towards loan repayments. High interest rates, rigid repayment schedules, and fluctuating cash flows further intensify this burden. Loan burden not only affects the profitability and growth potential of businesses but also impacts the personal and household financial stability of entrepreneurs. In many cases, business owners experience mental stress, reduced savings, and compromised living standards due to persistent debt obligations.

Small business lending in India is governed by regulatory guidelines issued by the Reserve Bank of India, which aims to promote inclusive credit access for Micro, Small and Medium Enterprises (MSMEs). Banks and Non-Banking Financial Companies (NBFCs) are encouraged to provide collateral-free and priority sector lending to small businesses. Institutions such as Small Industries Development Bank of India and NABARD support MSMEs through refinance facilities and targeted credit schemes. Despite these frameworks, small business owners in semi-urban areas continue to face high interest rates, rigid repayment schedules, and limited awareness of formal credit schemes. Inadequate borrower protection mechanisms and complex loan procedures further increase repayment stress and dependence on informal lenders. Strengthening regulatory oversight, simplifying loan procedures, and improving financial awareness are essential to reduce loan burden and enhance sustainable access to credit for small businesses.

Review of Literature:

1. Erica Field, Rohini Pande, John Papp, and Natalia Rigol (2011):

Erica Field, Rohini Pande, John Papp, and Natalia Rigol (2011) conducted an important study on the long-run effects of repayment flexibility in microfinance institutions in India. The research examined how different repayment schedules influence borrowers’ business performance and financial discipline. The study found that borrowers who were given short grace periods before starting repayments earned higher profits, as they could invest loan funds more productively instead of immediately focusing on repayments. However, the study also observed a slight increase in loan defaults among borrowers with flexible repayment schedules. This indicates that while flexibility supports entrepreneurship and income growth, it can weaken repayment discipline if not properly managed. The authors concluded that microfinance institutions must carefully design repayment structures that support business growth while maintaining financial sustainability. Aligning repayment schedules with borrowers’ income patterns was highlighted as a key factor for long-term success.

2. Raja Laxmi Kamath, Arnab Mukherji, and Smita Ramanathan (2008):

Raja Laxmi Kamath, Arnab Mukherji, and Smita Ramanathan (2008), through the Ramanagaram Financial Diaries study, provided a detailed analysis of the financial lives of small shop owners in urban slums. By closely tracking daily cash flows, borrowing, and repayments, the study revealed that many entrepreneurs rely heavily on continuous borrowing to meet both business and household expenses. Due to irregular and uncertain income, borrowers often take new loans to repay old ones, creating a persistent cycle of debt. This dependence on informal and short-term credit increases repayment stress and reduces long-term financial stability. The authors emphasized that such borrowing behaviour limits savings, investment, and business expansion. The study suggested that access to affordable, well-structured, and long-term financial products could help small entrepreneurs escape chronic indebtedness and achieve sustainable growth.

3. Small Industries Development Bank of India (SIDBI) (2018):

The Small Industries Development Bank of India (SIDBI) (2018) conducted a comprehensive study on informal sector lending practices in India, focusing on micro and small enterprises. The report found that a large number of small businesses depend on informal lenders because of limited access to formal banking services. Complex documentation requirements, lack of collateral, and slow loan approval processes were identified as major barriers to institutional credit. As a result, entrepreneurs borrow at very high interest rates, which creates intense repayment pressure and increases the risk of financial distress or business failure. The study emphasized that high-cost informal credit restricts profitability and business sustainability. SIDBI strongly recommended expanding institutional credit channels, promoting digital lending platforms, simplifying loan procedures, and strengthening financial literacy programs to ensure inclusive and sustainable access to credit for small enterprises.

4. Thomas A. Timberg and V. A. Chandrasekhar (2003):

Thomas A. Timberg and V. A. Chandrasekhar (2003) analysed the structure and functioning of informal credit markets in India’s rural and semi-urban areas. Their study showed that informal lenders continue to dominate because they provide quick and easy access to credit without formal documentation or collateral. However, this convenience comes at the cost of high interest rates and rigid repayment terms. The authors found that borrowers often face heavy repayment pressure, which leads to long-term indebtedness and financial vulnerability. While informal credit plays an important role in filling gaps left by inefficient formal banking systems, the study argued that unchecked informal lending exposes borrowers to exploitation. The authors recommended strengthening formal financial institutions, improving regulatory frameworks, and expanding financial inclusion policies to protect small borrowers and reduce dependence on informal credit.

5. N. Srinivasan (2009):
6. Srinivasan (2009), in the Microfinance India: State of the Sector Report, provided a critical assessment of the rapid expansion of microfinance in India. The report highlighted the growing problem of multiple borrowing, where borrowers take loans from several microfinance institutions simultaneously. This practice significantly increases repayment stress and leads to over-indebtedness. The study found that inadequate borrower awareness, weak financial counselling, and lack of coordination among lenders contribute to repayment difficulties. Srinivasan emphasized that while microfinance has improved access to credit, irresponsible lending practices can harm borrowers. The report recommended stronger borrower education programs, better credit information systems, and responsible lending guidelines to ensure the long-term sustainability of the microfinance sector and borrower protection.

Objectives of the Study:

1. To study the loan-related behavior and financial decision-making of small business owners within the existing credit regulatory framework in semi-urban areas.
2. To analyze the financial and operational challenges faced by small business owners due to lending practices and limited access to regulated institutional credit.
3. To assess the overall impact of loan availability and credit constraints on business sustainability and borrower protection in semi-urban regions.

Research Methodology:

⮚ Sample Size and Selection Area: The study comprises 50–60 small business owners selected using the convenience sampling technique. The research is focused on semi-urban areas of Palghar city, Maharashtra.

⮚ Data Collection Approaches: Both primary and secondary data collection methods are employed. Primary data is collected through a structured questionnaire administered via Google Forms to small business owners in the study area. Secondary data is obtained from books, research articles, journals, reports, and relevant online sources.

⮚ Analytical Techniques: The collected data is analysed using percentage analysis and presented through tables and pie charts to interpret loan-related behaviour, financial challenges, and the overall impact of loan availability on business sustainability.

DATA ANALYSIS

Objective 1: To study the loan-related behavior and financial decision-making of small business owners within the existing credit regulatory framework in semi-urban areas.

Table 1: Future Loan Plans of Small Business Owners      figure 1: Future Loan Plans of Small Business

owners
(Original: Primary Data)

Interpretation:
The table shows that the majority of small business owners are open to taking loans in the future depending on business growth. Only a small percentage reported that they would never take a loan. This indicates that although loan burden exists, credit is still considered important for business expansion.

Table 2: Reasons for Not Taking Loans                                         figure 2: Reasons for Not Taking Loans

(Original: Primary Data)

Interpretation:
It is observed that high interest rates are the major reason for avoiding loans, followed by reliance on personal funds. Lack of awareness and fear of debt burden also discourage borrowing. This reflects hesitation among small business owners toward formal credit due to cost and complexity.

Table 3: Support Received from Government or Banks                           Table 3: Support Received from Government

or Banks

(Original: Primary Data)

Interpretation:
The table indicates that a large majority of respondents have not received any financial support from government or banking institutions. This highlights limited reach of institutional schemes among small business owners in semi-urban areas.

Objective 2: To analyze the financial and operational challenges faced by small business owners due to lending practices and limited access to regulated institutional credit.

Table 4: Financial Challenges Faced Without Taking a Loan                                                                                        Table 4: Financial Challenges Faced                                                                                                  Without Taking a Loan

(Original: Primary Data)

Interpretation:
The table reveals that small business owners face multiple financial challenges in the absence of loans. Apart from standard issues like expansion and stock purchase, many respondents reported other problems such as delayed payments and cash flow instability. This shows the critical role of credit in maintaining smooth business operations.

Table 5: Main Challenges in Running the Business      figure 5: Main Challenges in Running the Business

(Original: Primary Data)

Interpretation:
The table indicates that high competition, rising costs, and credit sales are equally significant challenges faced by small business owners. These factors directly affect cash flow and profitability, thereby increasing dependency on loans and contributing to financial stress.

Objective 3: To assess the overall impact of loan availability and credit constraints on business sustainability and borrower protection in semi-urban regions.

Table No. 6: Overall Summary of Survey Findings

(Original: Primary Data)

Interpretation:

The overall analysis indicates that small business owners show a positive inclination toward taking loans; however, their decision largely depends on business growth prospects. High interest rates emerge as the primary reason for avoiding loans, while a significant majority of respondents report not receiving any support from government or banking institutions. In the absence of formal credit, most businesses rely heavily on personal savings, leading to financial strain. These findings highlight the critical role of affordable credit and institutional support in ensuring the financial stability and growth of small businesses in semi-urban areas.

CONCLUSION

The study examines the impact of loan burden on small business owners in semi-urban areas of Palghar district and highlights key financial challenges faced by them. The findings reveal that while loans are considered essential for business growth and sustainability, high interest rates and limited institutional support discourage many owners from availing formal credit. A significant number of respondents depend on personal savings to manage business operations, indicating financial vulnerability. The lack of adequate government and banking assistance further aggravates cash-flow constraints. The analysis also shows that business expansion, working capital management, and operational stability are adversely affected in the absence of affordable credit. Overall, the study concludes that improved access to low-interest loans, better awareness of financial schemes, and strengthened institutional support are crucial for reducing loan burden and enhancing the financial health of small businesses in semi-urban regions.

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Books:

• C. R. Kothari (2004). Research Methodology. New Age International Publishers, New Delhi.
• I. M. Pandey (2015). Financial Management. Vikas Publishing House, New Delhi.
• R. Panneerselvam (2008). Research Methodology. Prentice Hall of India Pvt. Ltd., New Delhi.

Website:

• https://www.rbi.org.in

(Official website of Reserve Bank of India – MSME loans, banking and credit policies)

• https://www.msme.gov.in

(Ministry of Micro, Small and Medium Enterprises – Government schemes and support)

• https://palghar.gov.in

(District Administration Palghar – regional and socio-economic information)

• https://www.sidbi.in

(Small Industries Development Bank of India – MSME finance and credit facilities)

• https://www.nabard.org

(National Bank for Agriculture and Rural Development – rural and semi-urban credit support)

• https://www.worldbank.org

(World Bank – reports on small business finance and financial inclusion).