At present, India houses more than 6300 crore MSMEs, making it one of the largest sectors in the country. However, securing adequate funding to continue operations for these businesses has always been difficult.
Financial institutions and lenders offered around Rs.17 trillion as loans to MSMEs in FY2019.
There exists a credit gap of more than $380 billion in India’s MSME sector.
SME finance is crucial for these smaller enterprises to achieve their full potential. Additionally, the fact that millions of jobs depend on this sector is another reason why financing solutions are essential for MSMEs.
As a small or medium business owner, you can utilise various options when it comes to raking in the necessary finds from NBFCs. Listed below are the viable avenues you can pursue whenever there is a need for cash inflow –
Start-up loans
As the name suggests, a start-up loan is nothing but a business loan available to companies that have been in business for just a few years.Since these loans are for relatively fresh enterprises, lenders do not have the luxury of determining creditworthiness by studying repayment histories.
Instead, before approving such an SME finance option, NBFCs may delve into your personal credit ratings and history.
Keep in mind that even though start-up loans are available to new companies, the business must already be in existence at the time of loan application. Turnover figures and other financial characteristics are considered before deciding on your loan amount, interest rate and tenor.
Although there are some crucial differences between a start-up and an SME, these loans work just as well for medium or small companies.
Working capital loans
Working capital is the expenses related to SME operations that such companies must bear on a daily basis. If your business is unable to meet these costs, availing a working capital loan is the best choice. Working capital finance is necessary for small businesses, and such financing option is the only way to fund day-to-day operations.Invoice financing
Small businesses often suffer from an issue whereby there is a delay in bills receivable. Nevertheless, you can utilise the raised invoice to secure funding even though you have yet to receive the actual payment.Invoice finance refers to a secured line of credit, where the invoice amount is collateralized against the loan proceeds.
Keep in mind that you cannot avail the invoice’s full amount as credit. Instead, most lenders offer up to 80% of the invoice valuation as your final loan amount.
Equipment financing
If you are in the manufacturing business, you must know the importance of owning the right equipment and machinery for the job.Nevertheless, these necessary items tend to be immensely expensive, making it difficult for small businesses to acquire them. You can improve your cash flow by taking equipment loan from reputed lenders.
In this form of credit, you can use the loan to acquire the machinery you need. However, the purchased assets are considered as collaterals against the loan. In most cases, the interest rates on equipment financing are lower than standard term loans.
Business credit card
If all else fails, you can always apply for a business credit card. Although not as beneficial as the other options in this list, such credit cards are particularly useful when you require immediate funds.This short-term credit can fulfil any emergency liabilities since you can easily utilise the sanctioned limit for all your business purpose.
Still, ensure timely payment of business credit card bills to avoid bearing hefty interest charges on your expenses. If possible, choose one of the other SME finance options, reserving such credit cards as a last resort.
Regardless of the option you choose, it is always beneficial to acquire SME finance from reputed lenders, such as Bajaj Finserv. The company provides up to Rs.20 lakh as small business loans, with approvals under 24 hours.
The NBFC also provides pre-approved offers to speed up the loan application process, while also ensuring the utmost convenience.
These offers are available on several financial products, including personal loans and business loans. You can check your pre-approved offers by simply submitting contact information and name.
Depending on your business and scope, you can utilise one or all of the five ways listed above to avail a sizable loan. Still, you must plan repayments before opting for such credit.
