In India, the MSME sector (Micro, Small and Medium Enterprises) is an important source of growth, contributing significantly to GDP and employing millions of people. One of the main challenges faced by MSMEs is financing the expansion, something that also keeps the industry from realizing its full potential. Although new government policies and programs are trying to fund several of MSME owners’ business requirements, a few challenges to accessing MSME loans remain.
MSMEs generate mass employment in all parts of India and are vital to the country's progress. Given their importance, the Government of India provides support and assistance with various programs to ensure that MSME growth continues unabated, especially with MSME loans, during the global economic crisis. Despite their significant economic contribution and support from the Government, the lack of adequate and timely access to MSME lending and finances remains a major test for the sector, which has hampered their development.
Banks are reluctant when it comes to MSME funding as their financial requirements could be of a low-ticket size, and they are unsure about MSMEs’ repayment capabilities. Banks usually adopt strict eligibility and approval criteria to provide MSME loans because of this confidence crisis. Because MSMEs may not have a credit history, they are considered to be high-risk; They consider such loans a high cost to their business. In addition, businesses often fail to maintain their credit ratings, thus affecting their ability to access MSME loans. Also, the long process of approving MSME loans adds to the dissatisfaction of small business owners.
Some businesses fail to keep track of their credit ratings which undermines their ability to get a loan. In addition, standard lending options make it difficult for business owners to meet strict eligibility requirements without the long-term MSME loan approval process which is extremely stressful.
Some small businesses may find it difficult to get an MSME loan because of a strong collateral requirement. However small companies may not have the space to guarantee loan repayment terms, and business owners may choose to borrow unsecured Business Loans from lenders where they do not have to worry about providing collateral or assets to obtain loan approval.
Despite the Government's efforts to make corporate debt freely available to small businesses, many businesses face difficulties in securing funding or access to MSME loans. Due to the strict collateral policy of lending institutions in providing MSME loans, small businesses may find it difficult to secure MSME loans. Small businesses may lack the necessary resources to secure access to MSME loans. For example, many MSME industries include regional businesses such as handicrafts, art, marble, stonework, etc. Although these industries are booming in the international market, banking institutions are failing to provide much-needed support for MSME lending.
Despite these challenges, business success is achieved with determination and these problems can easily be solved if you get the right support from creditors.
Aside from displaying amazing business acumen, many MSME business owners do not have the financial knowledge to make sound business decisions. In many cases, this can lead to higher operating costs and lower debt scores. In addition, failure to choose the right lender leads to higher interest rates on small Business Loans. They are not up to date with the latest financial technology used by many NBFCs and online lenders.
This often leads to unequal working rates and bad credit scores. MSME entrepreneurs who do not have basic financial knowledge may not be able to make critical business decisions about finances, for example, choosing the right loan framework when applying for an MSME loan. The high-interest rate on loans for small companies is the result of an inability to choose the right lender.
As a result, it is important to understand everything about MSME loans, learn about MSME loan interest rates, and compare them with the market before taking out a loan. Even if entrepreneurs continue to develop new strategies and plan to expand their existing business, there are still many entrepreneurs who do not have the financial know-how to steer the business in the right direction.
Some problems of MSMEs include the impact of older management systems that require small businesses to obtain licenses, insurance, certificates, etc. Due to those laws, MSMEs are barred from receiving timely funding. However, many small businesses do not use online business transactions due to a lack of trust and unfamiliarity with technology. Regulatory gaps that cause delays in obtaining licenses, insurance, and certificates also hamper MSME opportunities.
Many businesses fail to reap the benefits of the latest technological advances in their sector due to a lack of knowledge and awareness. MSMEs, therefore, need to be informed of technological advances that are critical to the growth of their businesses. Scientific research themes must stay in touch with local MSME collections and be aware of their technical problems and issues.
Despite government programs and the emergence of FinTech businesses, many MSME businesses remain unaffected by technology development and legal development, especially in rural areas. MSMEs are also plagued by outdated technology and a lack of skilled staff when they present strong reasons for earning and receiving MSME loans. Due to a lack of funding, many firms have problems with production, timely purchases, and access to new technologies or acquisitions of new skills.
As a result, MSMEs should be aware of technological advances that are critical to their success. Research institutes should be linked to local MSME collections and consider their technical difficulties and problems. The development of regulations will not serve its intended objectives if inefficiency and inequality remain in the system.
At Poonawalla Fincorp, we understand the unique financial needs of MSMEs and the challenges they face in accessing funding. To help small businesses grow faster, we offer MSME loans. Apply now If you would like to avail of a Business Loan from Poonawalla Fincorp, tailor-made to suit the needs of smaller businesses.
Micro, small, and medium enterprises (MSMEs) are among the largest employment providers in India. The total contribution of MSMEs to the overall employment in the country is 69%.
Micro, small, and medium enterprises (MSMEs) are the growth drivers of the Indian economy. To sustain their growth, the Government of India provides several subsidies and schemes to them.
For running a successful small and medium business in India, you need more than just patience and dedication. A sound positive cash flow is an integral part to make a business successful.