MSMEs are the pulse of India, they employ the largest number of people across the country and also are the biggest contributor to India’s GDP. However, even after being the biggest contributor to India’s growth they are heavily deprived of credit and as a result they face stiff resistance to growth and the biggest challenge being the inability to manage their working capital.
Managing Working Capital effectively is the key for small businesses as they often supply to larger companies who have their own credit policy which often has a period of 30 days after which they make payments. However, the MSMEs have to consistently keep producing their products or services in order to fulfill requirements of other clients and also to pay their employees or vendors on time. This results in a working capital gap and MSMEs depend on working capital loans to run their business effectively.
To avail the Working Capital Loans the MSMEs depend on the lenders, and here are some options they have:
The local lenders who operate in the unorganized market offer working capital loans on a huge and abnormally high interest rates, such rates are not just impossible to repay but also a nightmare to manage as they may spoil the personal reputation and goodwill.
The traditional lenders do offer working capital loans to the MSMEs. However, it comes with several challenges, some of them, are as follows:
- Requirement of Collaterals. The traditional lenders ask for collaterals against which they can underwrite the loans. However most small business might not have a property of their own. This makes them out of reach to access the working capital loans.
- Slow Application Process. The entire application process with the traditional lenders takes a lot of time to complete, it might take weeks or months before a working capital loan is eventually approved, this defeats the entire purpose of applying for the business loans.
- Multiple Visits. The traditional lenders demand the small business owners to visit their branch locations multiple times which takes a lot of time and effort in getting the working capital loans instead of focusing on running their business
The Digital Lenders
The digital lenders or the fintech with its arrival has been helping the MSMEs in India to get access to not just the working capital loans but also brought the much needed certainty and transparency in the entire process by enabling the businesses with unsecured business loans. Here’s how the digital lenders are creating a difference in the way the small businesses are getting access to the working capital loans.
Special Products. The digital lenders offer special products for various types of small businesses. For example, Indifi which is a leading digital lender offers special products for Retail shops, restaurants, hotels and travel agents and these products consider the business cycle and types of these specific businesses and offer unsecured business loans on basis of business transactions.
Easy Application Process. The digital lenders offer an easy application process. Indifi for example has a quick and simple online form that captures basic business details and KYC. It just takes a few minutes to complete the application.
No Visits Needed. The digital lenders have a completely online process which ensures that the small businesses are not required to visit any branch locations to get their unsecured business loans approved which ensures the small businesses can focus completely on their business.
Unsecured Products. The working capital loans offered by the digital lenders like Indifi are completely unsecured and do not require any collaterals or guarantors, these unsecured business loans are based on the business transactions themselves. For example, a retail shop owner may get the unsecured business loans basis their transactions against the card swipe machines and a Hotel or Restaurant Business may get their working capital loans approved against their transactions with the travel booking aggregators and so on.
Flexible Repayments. The digital lenders like Indifi offer complete flexibility of the repayment of the unsecured business loans they offer to the MSMEs. As a result the MSMEs may choose to link their repayments with their business transactions thus removing the installments altogether from the equation or they may also repay in easy monthly, fortnightly or even weekly installments.