Instant Cash Loans: The Need Of the Hour For Distressed MSME Players The sector that employs about 120 million individuals is struggling to ensure continuity, mainly due to the collapse of global supply chains
Opinions expressed by Entrepreneur contributors are their own.
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.
The survival of any business significantly depends on its financial capability, especially during a crisis. Today, while the entire world is grappling with uncertainty, MSMEs are among the worst-hit sectors in the wake of a global pandemic.
The sector that employs about 120 million individuals is struggling to ensure continuity, mainly due to the collapse of global supply chains. Unfortunately, 25-30 million people hailing from this sector have already lost their jobs or are experiencing salary cuts.
Understanding the pain points of MSME
Businesses that are striving to sail through this crisis are facing a massive financial crunch. The key reason—they still follow the traditional method of payments via cheques. This means they get access to money after 15-45 days of providing the goods or even longer in case of invoice processing. This naturally makes it difficult for them to manage even fixed expenses, including payments to suppliers and staff.
What adds to their woes is the tedious paperwork that banks require when it comes to lending to small and medium-sized businesses, if they consider it at all. The reason? Low or no credit history and lack of collateral in some cases.
At a time when there is already a slowdown in sales, businesses significantly lack reserves to keep their cash flows smooth and running. To revive from such situations, they look for alternate funds, pay high interests and eventually land into a debt trap.
To bring some relief, the government introduced the moratorium (March-August 2020) to borrowers. Although it eliminated their burden of paying current loan EMIs only for a temporary period of six months, the scale of losses due to the lockdowns was insurmountable.
Given the pain points, it is visible that most businesses in the MSME sector have been going through a severe liquidity crunch, and finding it difficult to raise finance or credit formally.
This is where fintech solutions step in.
Fintech: A ray of hope for MSMEs
As established earlier, businesses need finances even for their on-going expenses before they receive payments from customers and vendors. To ensure smooth sailing in these uncharted waters, they need working capital solutions like instant cash loans. These can be easily accessed through players in the fintech space, without the need for any collateral.
Under this new offering, fintech companies analyse the payment and credit history of borrowers through data-driven processes to understand their repayment capability, before granting them loans. Once approved, borrowers can withdraw money within a few days or instantly sometimes. This helps them drastically improve their cash flows and helps them meet their unexpected credit requirements with easy repayment options.
Solutions like instant cash loans not only address the funding gap of small and medium businesses but also accelerate financial inclusion across India. Distressed businesses need more credit solutions in order to recover from heavy losses and return to health to ensure seamless operations in the new normal. To make this happen, more players in the finance sector should learn and replicate this approach for the greater good of the economy.