Small scale industries face numerous challenges that prevent them from realizing their full potential. These problems are primarily related to their size and scale of operations, putting them at a distinct disadvantage compared to large-scale industries.

One of the most severe problems is the non-availability of adequate finance. Small businesses generally begin with a small capital base and lack the creditworthiness to raise capital from capital markets. They heavily depend on local financial resources and often become victims of exploitation by money lenders. Banks are reluctant to lend without adequate collateral security, guarantees, and margin money, which many small units cannot provide. They also suffer from lack of adequate working capital due to delayed payments or capital locked in unsold stocks.

The procurement of raw materials is another major challenge faced by MSMEs. Additionally, these units often operate in remote locations with less developed infrastructural facilities, which further hampers their operations and growth potential.

Small scale industries also suffer from lack of managerial talent, poor quality of products, and reliance on traditional technology. These factors collectively affect their competitiveness and efficiency in the market.

For units engaged in exports, additional problems include lack of adequate data on foreign markets, lack of market intelligence, exchange rate fluctuations, meeting quality standards, and obtaining pre-shipment finance.