Small scale industries have some peculiar problems because of the organizational pattern of these industries.

The various problems that arises are as follows:

Problem of Raw material: A major problem that the small scale industries have to contend with is the procurement of raw material. The problem of raw material has assumed the shape of an absolute scarcity, poor quality of raw material and high cost .Earlier the majority of small scale industries ,mostly produced items dependent on the local raw material, but ever since the emergence of modern small scale industries manufacturing a lot of sophisticated items, the problems of raw material has emerged.

Problem of Finance: An important problem faced by small scale industries is that of finance. The problem of finance in small sector is mainly due to two reasons.Firstly, it is partly due to scarcity of capital as a whole.Secondly, it is partly due to weak credit worthiness of small units. Due to their weak economic base, they find it very difficult to take financial assistance from the commercial banks and financial institutions.

Problems of Marketing: One of the main problems faced by small scale businesses is in the field of marketing. These small units often do not possess any marketing organization. In consequences, their product quality compares unfavorably with the quality of the products of the large scale industries.Therefore, they suffer from a comparative vis-a-vis large scale units.

Problems of under utilization of capacity: There are studies that clearly rule out the under utilization of capacity in small scale units. On an average 40% to 50% of capacities are under utilized in small scale units. This problem is faced because of the power supply which is not always available to small units and unlike large units, the small scale units cannot afford to go on for alternatives like installing their own thermal units.

Outdated Technology: Most of the small scale units depend upon old techniques and equipments. Due to limited capacity and capital they find it very difficult to modernize their plant and machinery.

Poor project planning: In the absence of education and experience, small scale businessman often depends upon consultants. They do not fully understand project details.

Inadequate Infrastructure: Insufficient quality and quantity of transportation, communication and other basic services particularly in backward areas is another problem.Infrastructural gap results in under utilization of capacity and wastage of materials.

Absence of Vertical growth: There is a lack of widespread ancillarisation and sub-contracting which can help small scale industries to grow with large units.