For MSMEs to Access Credit- Availability is Only the First Step

1. For MSMEs to Access Credit- Availability is Only the First Step Micro, small and medium sized organizations play a pivotal role in a country’s economic development, especially in developing economies as they work on an everlasting growth tangent. This specific sector has a huge contribution towards the growth, innovations and employment generation in the supply chain. MSMEs are still unable to integrate seamlessly with the finance sector. But once they do, they can tap their utmost potential backed with adequate finance and investments. With the advent of modern age technologies and its adoption, the financial sector and institutions have multiple credit services to offer, especially to MSMEs. Unfortunately, it’s the lack of understanding that creates hindrance for MSMEs to grow and make a stable market presence. In this article, we will discuss how it takes much more than just availability of credit to get credit access for MSMEs. Why Do MSMEs Need Access to Credit? MSMEs are the backbone of any country’s economy. However, despite the importance of this sector, it has failed to get the credit it deserves. Various reasons can be attributed to this, including the fact that banks have not been able to provide the right products and services that fit the needs of small businesses. Here are a few reasons why access to credit is important for MSMEs. ●To Invest in the Business: MSMEs make up a large part of the economy, but they do not have the necessary financial resources to make large investments, expand their businesses, and create more jobs.

2. ●To Create Liquidity: An MSME might have payments due next month, but it may not have enough cash to pay them. Access to credit allows the business to take out short-term loans to meet these obligations. ●To Fulfill Long-Term Objectives: MSMEs often have long-term business objectives that require capital investment on a scale that is beyond what their current cash flow can support. ●To Reduce Costs and Increase Productivity: MSMEs can use credit to buy more efficient equipment, hire a better-qualified workforce, or purchase supplies or raw materials in larger quantities to get lower prices. ●To Mitigate Risk: MSMEs use credit to manage their risk by having a safety net if sales are lower than expected or if there is an unexpected increase in costs. ●To Expand and Create Jobs:Credit can help an MSME secure the capital it needs to expand its business and hire new employees. ●To Diversify the Business: An MSME can use credit to purchase assets that allow it to offer new products or services. ●To Respond to Changes in the Economy: Credit can help an MSME keep operating if there is an economic downturn and there are fewer customers. ●To Respond to Changes in the Business Climate: Credit can help an MSME smooth out the ups and downs inherent in any business and make necessary adjustments to stay competitive. Challenges MSMEs Face with Access to Credit

3. MSMEs face a lot of challenges while they want to obtain credit from financial institutions and banks. Here, we have listed a few challenges MSMEs face with credit access. Business Risk When an MSME approaches a bank for a loan, it needs to prove that it has a viable business plan. This is especially important for young entrepreneurs who have little track record or assets to fall back on if something goes wrong. Lack of Collateral and Assets Financial institutions often want to be repaid in full, so they look for something that can act as collateral. MSMEs may not have any tangible assets that the bank can take if the loan is not paid on time. Inability to Provide a Detailed Business Plan A lot of banks want to see a detailed business plan before they approve a loan. Unfortunately, many young entrepreneurs do not have a plan, or they may have one but do not know how to write it. Lack of Understanding of How Credit Works Many entrepreneurs do not know how credit works. For example, they may not know how credit scores are calculated or how they can improve their score. How SCF Will Help MSMEs with Credit Access? Supply Chain Finance Platformwill help MSMEs with credit access. Here’s a detailed overview.

4. Credit as Working Capital With the help of Supply Chain Financing facility, banks provide credit to the buyers, their clients in most cases. They use this credit to provide funding to MSMEs in the form of working capital. Credit at Lower Rates Courtesy the SCF facility, MSMEs get access to larger volumes of credit at significantly lower credit rates. This ultimately benefits the supply chain as suppliers gain access to reliable sources of liquidity. Lesser Risk of Unpredictability With the help of SCF, not only can MSMEs obtain financing at reduced interest rates but they can also mitigate the risk of unpredictability in cash flows. Since they are on credit access, it also helps them plan and manage their inventory better. How Do SCF Platforms Help in Accessing This Credit? Supply Chain Finance Platforms help MSMEs access credit in the following ways. ●Digitized Process: MSMEs can get their credit without having to go through a lengthy manual process. SCF platforms digitize the process for the credit to go through smoothly. ●Visibility Across The Chain: SCF platforms provide greater visibility across the supply chain which allows the MSMEs and buyers to decide the magnitude of credit they would want to take. ●Analytical Dashboards: SCF platforms enable MSMEs to analyze all the aspects of the credit they are about to get, the interest rates of the same, and all other details related to it. Conclusion

5. With the many benefits that come with easy access to credit, it’s no wonder that MSMEs want to get their hands on it. However, due to the lack of understanding, many MSMEs face numerous challenges when it comes to credit. Luckily, Supply Chain Finance provides businesses with a wide range of services and opportunities to access this credit.