Working capital is an essential measure in determining a company’s financial health, regardless of its size or business sector. Many businesses are facing major working capital issues and instability as a result of the Covid-19 pandemic. This is because supply chain disruptions, employee migration, delayed payments, challenges in procuring raw material, and many more significant challenges have added up to cash flow issues.
To tackle these challenges, taking a working capital loan should be a priority for small business owners. Having adequate working capital has many advantages for a business. These range from the smooth running of daily operations to having the ability to seize opportunities and orders as they arise, without worrying about the financials.
The importance of a Working Capital Loan
Working capital is more of a challenge now than ever before, as small business owners face operational difficulties due to Covid-19. The cash flow issues arising from these can lead to difficulties in paying salaries and overheads and might result in tapping into emergency reserves.
MSMEs (Micro, Small and Medium Enterprises), which are at the heart of India’s growth story, are credit deprived and need adequate assets/capital to thrive in a competitive market. According to a report published by IFC (International Finance Corporation), only 21.5% of SMEs approach banks and formal foundations for financing. There is a huge cap in credit financing.
The good news is that India’s SMEs have more opportunities to get a working capital loan. This means more and more MSMEs are approaching banks and Non-banking Finance Companies (NBFCs) to seek working capital loans.
It is well known how MSMEs in the trading or services sector utilize a working capital loan for expenses like buying inventory, product expansion, purchase order financing, renovation of business premises, and many more. But MSMEs in the Manufacturing industry can also avail working capital loans for similar purposes.
How MSMEs engaged in the Manufacturing Sector can use Working Capital Loans?
To run their day-to-day operations smoothly and efficiently, MSMEs need adequate working capital. Working capital is needed at every stage of production in small manufacturing companies, from raw materials or inventory to the distribution of finished products.
Manufacturers understand the value of machinery and equipment. Production can come to a grinding halt if a machine malfunctions. While it can be challenging to buy a new machine, an effective alternative is to repair existing machinery, with the aid of a working capital loan.
Refresh your inventory or raw materials
Businesses sometimes need to upgrade their inventories, but don’t have the funds to make the necessary changes. In such cases, working capital loans can be helpful. Mediocre inventory can hold a business back. By using additional working capital, business owners can buy inventory that will draw new customers.
Recruit skilled staff
A manufacturing company cannot grow if it doesn’t have a pool of skilled, capable employees. It should be a priority for business owners to hire people who will add value to their company. One way of doing this would be by taking working capital loans to pay wages for skilled workers. With the additional support, they can serve more customers in a more efficient manner.
Controlling cash flow
Manufacturing companies often need a significant amount of money to complete large projects. They will have to turn down business opportunities if they do not have enough liquidity. A working capital loan can be used to maintain cash flow, so that business operations can keep running smoothly.
Why should NBFCs be your preferred choice for taking an MSME Loan?
Flexible application process
NBFCs provide flexibility in terms of documentation or KYC requirements. They assess a company holistically and look for more information than just credit scores to decide on the eligibility of a potential borrower.
While the applicant must meet the working capital loan eligibility requirements, NBFCs are more flexible in this regard. This makes the loan approval process simpler, smoother, and faster. Tech-enabled NBFCs like Kinara Capital have efficient assessment and approval processes that speed up the loan disbursal.
Serving first-time borrowers
NBFCs cater to the needs of borrowers who haven’t accessed formal credit before. Because of their constraints, banks are often reluctant to lend to customers who don’t have a healthy credit score, collateral to pledge against the loan, etc. NBFCs are more flexible and can service customers even without these requirements.
NBFCs meet the capital needs of Tier-2, Tier-3, and Tier-4 business segments. For loan disbursement, they create a vast network with multiple contact points and have round-the-clock operations and sales. This offers increased accessibility for customers.
Small Business Entrepreneurs supported by trusted NBFCs like Kinara Capital report an average income increase of 20-25% and boost their business growth with increased production capacity, higher sales and turnover, as well as the ability to create more jobs. You, too, can boost your business growth with a working capital loan from a reputed NBFC!