The MSME sector is the backbone of India’s economy and holds around 63.4 Million units throughout its geography. This sector contributes around 6.11% to the county’s manufacturing GDP, 24.63% to the GDP of the service sector and 33.4% to the GDP of manufacturing output.
This MSME sector also contributes to the employment growth of India, providing jobs to approximately 120 million individuals in the country. It also contributes around 45% to the export industry of India.
To fuel the growth of these MSMEs, financial institutions and NBFCs of the country offer advances such as a working capital loan at attractive interest rates. However, in spite of such growth, raising funds to expand has never been an easy task for these MSMEs.
Discussed below are some of the fundraising challenges faced by the MSMEs –
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Unawareness
Owing to the vigorous competitions, financial institutions and NBFCs of India are also striving for their growth for which they are altering their guidelines. With numerous Government schemes and various financial products offered by these lenders, it becomes challenging for the owners of these MSMEs to be aware of all such schemes. This unawareness leads to availing a loan for working capital at considerable interest rates, which increase the total cost of loan and also puts a burden on their pocket.
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Selecting the correct type
There are two kinds of fundraising options available to these MSMEs – equity and debt. Selecting the correct type depending on their requirement can be difficult for these Micro, Small and Medium Enterprises (MSME full form)
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Application process
While availing a working capital loan, you are required to meet its restricted eligibility criteria failing which, your loan application may be rejected. You also have to go through a strenuous application process that involves hefty paperwork.
Nonetheless, there are certain financial institutions and NBFCs that provide advances against minimal documents and relaxed eligibility criteria. Bajaj Finserv is one such NBFC that provides Business Loan at an attractive interest rate. They also offer a substantial loan amount of up to Rs. 30 Lakh, a prolonged tenor, instant approval, collateral-free loans, online account access, etc.
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Considerable interest rates
Availing advances at an extensive interest rate increases the total cost of your loan and also puts a burden on your pocket. Such burdens can affect while you grow your business for which you should inquire about the interest rates of various NBFCs and financial institutions before choosing one.
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Rejection
Several lenders prefer to offer advances to large and established enterprises as the risk of default is lower. These Micro, Small and Medium Enterprises (MSME full form) have a difficult time proving their financial stability and repayment capability at the time of application. Failing to meet the restricted eligibility criteria ends up in the rejection of the application.
Some ways to avoid rejection of your working capital loan application are holding a CIBIL score of 750 and above, repayment of the existing dues on time and meeting the age limit. Additionally, keep certain documents like Aadhaar card, PAN card, income tax returns, and other financial papers ready at the time of application.
Other challenges faced by these MSMEs face are lack of proper business plan and strategy. Several financial institutions and NBFCs approve funds based on the business prospect and strategy. Lack of proper planning may also affect the approval of the same.