Securing funds for business growth can be a significant challenge for
MSMEs. The reason may be limited access to the capital market or the
inability to raise capital through personal wealth. Other factors,
such as limited collateral and strict loan criteria, hinder businesses
from the getting required financial support.
This 78th
Independence Day, free yourself from the stress of business financing
with a Business Loan for
MSMEs to grow your business. This blog explores the challenges
small businesses face in accessing funds and provides potential
solutions to bridge the financial gap. Read on to learn more.
Why Do MSMEs Face Problems in Acquiring Funds?
MSMEs encounter significant challenges when seeking funding for their business needs. Here are some reasons that lead to the financial gap:
- Limited Credit History
MSMEs have shorter credit record as compared to large companies. Hence, they often find it challenging to secure the required financial assistance. This makes it difficult for lenders to assess the entity’s borrowing behaviour, creditworthiness, and ability to repay the loan. As a result, lenders may refrain from offering loans to them.
- Lack of Collateral
High collateral requirements may also limit MSMEs from getting credit. These businesses may lack substantial property or assets to offer financial institutions as collateral. This absence of tangible security makes lenders hesitant to extend credit, leaving MSMEs struggling to avail of necessary funds.
- Limited Access to Professional Networks
Professional networking is an innovative approach to securing
business financing. It enables businesses to learn, collaborate, and
thrive with the help of other businesses and investors.
However,
the lack of name recognition of MSMEs leads to limited access to
professional networks. Without networking, small businesses miss out
on the opportunities to present their business models to lenders and investors.
- Lack of Awareness to Avail of Other Financing Sources
Recent studies suggest that a significant reason for the struggle of MSMEs in India to access funds is limited financial literacy. Many MSMEs are unaware of the availability different financing options, including government schemes, financial institutions, and banks. This limited financial knowledge hinders them from exploring or applying for loans that could aid in their growth.
- Inconsistent Financial Documents
Many small businesses struggle with maintaining detailed
financial records and documentation, including cash flow statements,
tax returns, balance sheets and profit and loss statements.
These documents are required during loan applications to validate
the business' qualification for the loan. Hence, the inability to
present complete financial data can discourage lenders from
approving loans.
- High Interest Rates
MSMEs are considered high-risk borrowers. Therefore, lenders may charge high interest rates to compensate for the increased risk. This results in increased borrowing costs and minimises their profit which limits them to secure loans.
Benefits of a Business Loan for MSMEs
Here the benefits of taking a Business Loan for MSMEs:
- Helps Meet Business Needs: A loan for MSMEs helps you fund diverse business needs such as fulfilling working capital requirements, purchasing new machinery, spending on marketing and promotions, etc.
- No Need for Collateral: You can secure an MSME loan without pledging any collateral under various government schemes. Several NBFCs offer a collateral-free Business Loan for MSMEs. This minimises the risk of borrowing.
- Competitive Interest Rates: Many lending institutions provide this loan at competitive interest rates and nominal charges, helping you minimise the overall cost of borrowing.
- Requires Minimal Documentation: For a Business Loan, you only need to submit a few essential documents. It streamlines your application process and helps you get the funds quickly.
- Flexible Repayment Options: Several lenders offer an MSME loan with a flexible repayment tenure, enabling you to repay the loan according to your financial comfort.
- Convenient Online Application: You can apply for a Business Loan within minutes from the comfort of your home, saving your time and effort.
- Quick Approval: Various NBFCs provide quick approval and instant disbursal for an MSME loan. This enables you to address all your urgent business needs quickly.
To Conclude
MSMEs encounter various challenges in accessing funds, including limited financial literacy, a lack of professional networking opportunities, and collateral requirements. Addressing these challenges requires improved accessibility to financial information, support from professional networks, and hassle-free financial solutions. Trusted lending institutions like Poonawalla Fincorp offer a tailored Business Loan for MSMEs to help you secure stress-free funds for your business growth. With this loan, you can confidently meet all your business needs with benefits such as collateral-free financing, attractive interest rates, flexible repayment options, and zero hidden charges.
