Are small business loans the best way to go for MSMEs?
Micro, Small and
Medium-Sized Enterprises (MSMEs) are thriving in today’s age even with the dual
throttles of demonetization and GST. This is why the credit to MSMEs is also
expected to climb at 12-15 % over the next five years1. It is also
seen that the government has started a range of platforms to cater to MSMEs
like MSME Sambaandh3 and MSME Samadhaan3. This all goes
to suggest that MSMEs will witness better growth trajectories going ahead. In order
to realize this potential and utilize the new set of opportunities that are
unfolding in the business arena, MSMEs would need to work on all the aspects
that contribute to its functioning. These include land and machinery,
manufacturing processes, raw materials, human resources and capital. Of all
these, capital stands as the most significant as it can procure all the other
resources and help the MSME to stay afloat. Our work here at PrestLoans (www.prestloans.com) involves working
hand-in-hand with MSMEs, trying to figure the best means of securing capital
for them. With our experience and analysis that we will be presenting, we
believe that small business loans that MSMEs secure from NBFCs like us, is
their best option to secure capital.
Why small
business loans are the best way to go for MSMEs?
1)
The credit demand is only going to grow-
There are banks and then there is the government with its myriad NBFC-funding
schemes (that are useful in their own right) but they can only do so much to
cater to the unmet credit demand for MSMEs that stood at a whooping INR 25
trillion in 20171. This kind of demand cannot be met by the limited
government schemes and the limited number of trustworthy banks that provide
customized schemes for MSMEs. The answer is seeking out the expertise and
finance of NBFCs who can quench the demand and inject the required capital in
the market.
2)
NBFCs work better in the world of MSMEs-
NBFCs are generally smaller organizations that have a niche in serving the need
of MSMEs. This niche is what NBFCs specialize in and hone through years of
experience. NBFCs ‘relate’ to MSMEs better since NBFCs themselves are generally
mid-sized businesses themselves and know first-hand about the nuances of the business
world. Their perspective is closer to the way MSMEs look at things. Hence,
NBFCs have the skills and expertise and even the emotional quotient to work
with MSMEs.
3)
Small business loans from NBFCs are customizable- The schemes offered by banks and the government work under fixed
silos of governance and rules. For example, the government recommends that an
MSME must have a project report comprising of a few specific points in order to
qualify for the government schemes2. While creating the project
report is obviously a good idea, but making that rule apply to everyone may not
make sense. A small business loan disbursed by a NBFC is more dynamically
formed, without always adhering to a framework of rules for the sake of it.
This kind of customization to the loan terms and requirements, depending on the
loan-seeker’s specific business scenario works better for MSMEs.
4)
Small business loans build calculated, manageable risk- It is not just about working with NBFCs but the overall mechanics
of small loans that are better suited to manage business risk than bulkier
loans. Even though a series of small loans probably incur more interest than
one big loan, a small loan can be taken at each stage of the growth and
appropriately managed. A bigger loan can lead to wealth mismanagement if there
are not sufficient channels to absorb it. A smaller loan can be put to better
and more transparent use, which is a heathier option for an MSME.
5)
Smaller business loans are obtained more quickly- The opportunities to grow, when a business is at its maximal
growth stage (which MSMEs frequently are) are quick to come and go. If an MSME
undertakes a new project or secures a large piece of work or wants to develop a
new technology before the competition does, then it would need to get a loan in
a lesser span of time than what it takes to disburse a loan at traditional
financial institutions. A small business loan is typically obtained more
quickly at NBFCs like PrestLoans (www.prestloans.com)
who apply advanced technology to automate credit checks, approval processes and
other formalities. By using innovative operations, they further cut down on the
loan turnaround time, which works harmoniously with the faster business arena
of the MSMEs.
Conclusion
Small business
loans are the most promising way for MSMEs to grow further and meet their
capital demand. Contributing to about 45% of GDP4 (more than corporate
India, interestingly) and employing 46 crore people4, MSME
definitely need all the help they can from NBFCs to make their growth journeys
successful. We at PrestLoans (www.prestloans.com)
are committed to contributing to the success of the MSME sector in India, by
our range of financial services and expertise.
Sources
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