#3 Alternative Financing Options for MSMEs
SME finance gap in Indian is roughly around $650 billion
If you are an MSME in India, we don't have to tell how difficult it is to raise funds in the country. Though the lending industry and government are taking significant steps to bridge the SME financing gap in the country, at the ground level entrepreneurs continue to complain.
In fact, it is been widely believed that the SME finance gap in India is roughly around $650 billion and this problem is not going to solve anytime soon.
Nevertheless, as an SME entrepreneur, we also don't have to tell you're about the traditional financing option like working capital and line of credit. But what when these options are exhausted and you need funds to keep the show up and running? What if you don't have any collateral in hand to raise loans? You can't shut the shop and ask everyone to go home, right?
This is when alternate finance comes at your disposal. Entrepreneur India gives three financing which helps you continue building your company without any financial hurdles.
One of the key issues faced by MSMEs is related to late payments, especially if you are working with larger corporations. However, if the capital is stuck outside the system and you have the valid invoice in place – one can consider discounting these bills.
Invoice discounting or factoring – is been part of the business lending industry for quite some time now. However, with the introduction of GST, the process is more streamlined.
You can either discount your invoice on Trade receivables discounting system (TReDS) platform such as RXIL, A.TReDs or M1exchange, which acts an exchange and helps one raise from funds from financial institutions such as banks. Or discount the bill directly through new-age SME lenders like Flexiloans, KredX or LivFin.
Merchant Cash Advance
While of some point-of-sales or PoS machines are payments facilitator, it is actually a good way to understand the financial health of your company. Based on your PoS data, you could access PoS finance or Merchant Cash Advance (MCA).
With MCA, the lender will issue you a percentage of advance based on your transaction recorded on the machine, along with a small fee. To avail this, you need not even have a healthy credit score to boast of.
Again, MCA can be availed through almost every other new age SME financers including Bajaj Finserv, TabCapital or Capital Float.
Peer-to-peer lending is a new age lending option. While this more like a personal loans option as of now, P2P lenders are indirectly supporting a lot of SMEs in the country.
All you've got to do this is – download a P2P lending app, register yourself and put in your requirements. In a matter some time, the app will analyse your mobile data to understand your creditworthiness and disburse the loan into your account.