Beyond Traditional Financing: Alternative Financing Strategies for MSMEs
MSMEs are the cornerstone of many economies worldwide that create employment opportunities and contribute to the growth of communities. However, economic downturns such as recessions have a substantial impact on the survival of small businesses. During these challenging times, small businesses are often affected the most by cash flow crisis, reduced sales, and increased competition. Besides, the recent COVID-19 pandemic has only exacerbated the situation, with many businesses struggling to stay afloat.
Fortunately, alternative financing options have emerged as a lifeline for small businesses looking to weather the storm of a recession. By exploring non-traditional financing sources such as government schemes, digital lending, invoice financing, and peer-to-peer lending, small businesses can increase their chances of survival and thrive in the face of economic uncertainty. However, there are alternative financing options that small businesses in India can explore to help them survive this difficult time:
Schemes Launched By the Indian Government
The Indian government offers various schemes to support small businesses during tough times. For example, the Pradhan Mantri Mudra Yojana (PMMY) provides loans up to Rs. 10 lakhs to small businesses without collateral. Additionally, the government also offers subsidies and tax benefits for small businesses in certain sectors to lessen their financial burden.
Digital Lending Platforms
Digital lending platforms provide quick and easy access to finance for small businesses in India. They use technology to assess credit risk and provide loans based on a small business’s financial history and growth potential.
Invoice discounting is another option for small businesses in India to secure financing during a recession. KredX is one of India’s leading supply chain finance platforms that provides invoice discounting solutions to MSMEs, wherein the business sells its outstanding invoices to a lender in exchange for immediate cash. The lender then collects payment from the invoice recipients. This option can provide small businesses with quick access to cash, helping them to overcome short-term financial difficulties. With KredX, small businesses can avail of additional benefits as they do not have to present collaterals in exchange and gain financial support without hampering their balance sheet.
Personal Savings And Investments
Owners of small businesses in India can also tap into their savings and the investments they have made in order to keep their enterprises floating during any economic downturn. Although it may not be a feasible option for many businesses, it can benefit those just working on building their company who don’t have a lot of history or collateral.
P2P lending platforms link individual investors with small businesses that require financing, providing an alternative to traditional lending sources. MSMEs often need help to obtain funding due to poor credit history or lack of collateral to count on, whereas P2P lending can offer access to funds that may be difficult to get via conventional means. Additionally, P2P lending can offer lower interest rates and fees than traditional lenders, providing MSMEs with a more affordable financing option. Overall, P2P lending can be a game-changer for MSMEs needing financing and help them thrive in a competitive marketplace.
In conclusion, several alternative financing options are available to small businesses in India during a recession. From government schemes to digital lending platforms, these options can provide MSMEs with the support they need to weather the storm and emerge more vital in the future. It’s essential for small business owners in India to carefully evaluate each option to determine which one is best for their needs.