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How NBFCs bridge credit gap for MSMEs?

Nikk JonesBy

Introduction

One of the most common difficulties faced by a small business owner to take their business to the next level is the credit gap. NBFCs play a very important role in bridging the credit gap for MSMEs. They provide a wide range of financial services that help MSMEs on time to overcome the financial challenges faced by MSMEs.

Challenges Faced by MSMEs

A complete range of factors significantly contributes to such a credit gap being formed and NBFCs have stepped in to bridge this gap. Before that let’s have a look at different challenges faced by MSMEs which has led to the credit gap in the first place.:

  1. Limited Credit History: New businesses usually do not have a long history of financial performance, and therefore the banks cannot judge their creditworthiness.
  2. Collateral limitations: The MSMEs may not have enough collateral base to fulfill the requirement of collateral for bank loans.
  3. Lengthy Loan Applications: The lengthy process of loan applications and a large amount of paperwork can make it difficult for MSME owners to get the business loan, which can also cause production delays.
  4. High Rates: Even if an MSME qualifies for a bank loan to begin with, the interest rates can be high and have a tight cash flow of their own. This can be challenging to an MSME owner as they already would under finance pressure due to lack of funds, collaterals and a weak cash flow.
  5. Specific Needs of the Industry: Different industries have different requirements that might need to be better addressed by the banks, which would create a missing link in specialized financial solutions to the MSMEs sightwiki .
  6. Maintain a healthy working capital cycle: Every business needs a regular cash flow. Without the capital, an MSME would not be able to stock or maintain the inventory, afford production, and pay the cost of operations.
  7. Invest in growth: To achieve growth plans like hiring new staff, acquiring equipment, or expanding to a new location, businesses need to obtain financing. Lack of proper financing will hold them from investing back to their own business for expansion purposes.
  8. Unexpected expenses: Emergencies such as machinery failure or sudden market trend shift may completely bring down an MSME’s finances. Credit access empowers businesses to bridge the gap during challenging times.

How NBFCs Bridge the Credit Gap for MSMEs

  1. Faster and Simpler Approval: The SME loan application process for NBFCs is easier and requires fewer documents, hence the process is faster. Availability of funds is provided within a short time, and this helps MSMEs use the funds effectively on many opportunities.
  2. Flexible Loan Products: NBFCs have a wide range of products on flexible loan terms to serve specific business needs, from working capital loans and term loans to equipment financing and industry-specific solutions.
  3. Growth Potential: As compared to bank finance wherein most focused on historical credit data, an NBFC would be more supportive to assess an MSME for its future purpose and business model. A strong business plan that shows a clear path to profitability can overcome a credit history that is limited in nature.
  4. Technological Advancements: Many NBFCs use advanced technology to provide easy access to funds. They offer online applications through mobile apps and options for faster loan disbursals, making it easier and quicker for MSMEs to secure financing. Additionally, they accept repayments from customers via online payment like UPI apps- Google Pay and Phonepe, which are more convenient to use. celebson
  5. Competitive Interest Rate: NBFCs are mostly competitive in comparison to the banks concerning interest rates. This reduces financial stress on MSMEs and enhances their cash flow.

Conclusion

By providing faster and simpler approval processes, and flexible loan products, with advanced technology, NBFCs offer much-needed financial support to the unique needs of MSMEs. They enable businesses to maintain a healthy working capital cycle, invest in growth opportunities, and manage unexpected expenses easily. NBFCs empower MSMEs to overcome traditional banking difficulties and achieve their full potential through faster loan approvals, easy digital KYC, and fast disbursals which allow a business owner to quickly access everycelenews the required funds. Their use of advanced technology ensures secure transactions and a streamlined application process. Hence applying for Business loans in NBFCs is a great choice to take the business to the growth aspects.