While the MSME sector’s prowess in strengthening India’s economy is impressive, let’s also be mindful of a concerning truth. In the past 10 years, 49,000 MSMEs have shut shop, leading to 3 lakh job losses. Of these, 23,000 enterprises closed down in 2023 alone. The trend of MSMEs lagging has emerged even as India’s economy is making solid strides.

Among the top reasons for this is the ongoing issue of limited access to credit. There’s a staggering $530 billion financing gap, as a mere 14% of India’s MSMEs have access to formal credit channels. Due to their restricted access to affordable formal loans, these businesses struggle with insufficient working capital, hindering their ability to grow and scale up or survive, especially during a slump in the economy.  

The above challenges further intensify with stricter loan conditions, higher interest rates, and lengthy loan approval and disbursal processes. 

Key Strategies to Secure Business Loans Even During Downturns 

The following key strategies can help MSMEs build a strong foundation and thrive in such uncertain times: 

1. Prepare a Solid Business Plan 

A well-prepared business plan can make a significant difference when applying for business loans. The plan should clearly outline the purpose of the loan, how it will contribute to the business’s growth, and a realistic repayment strategy. It should also include detailed financial projections, market analysis, and a contingency plan for managing risks during the economic downturn. A strong business plan reassures lenders of the business’s viability and the borrower’s ability to repay the loan.

2. Improve Creditworthiness 

Creditworthiness is a critical factor for lenders. MSMEs must improve their credit scores by paying off existing debts on time, avoiding new debt, and managing their credit utilization ratio. Additionally, ensuring no errors in the credit report is crucial, as even minor inaccuracies can negatively impact the credit score. A higher credit score improves the chances of securing a loan and may result in better interest rates.

3. Build Strong Relationships with Lenders 

Cultivating strong relationships with lenders can be beneficial, especially during tough economic times. Regular communication with lenders can help MSMEs understand their expectations and tailor their loan applications accordingly. A history of good relationships may also lead to more favorable loan terms and quicker approval processes.

4. Government Schemes like the Mudra Yojana  

Schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) provide collateral-free loans, which can be a boon for MSMEs. Additionally, the Pradhan Mantri Mudra Yojana (PMMY) offers affordable loans up to ₹10 lakhs for small business units. PM Vishwakarma scheme also bolsters the quality and reach of artisans’ products and services. Along with other programs such as PMEGP, SFURTI, and more, government initiatives are integrating MSMEs into domestic and global value chains and thereby into the formal economy. Staying informed about and taking advantage of such schemes can significantly ease the loan acquisition process and decrease the loan amount requirement.

5. Demonstrate Resilience and Adaptability 

Lenders are more likely to support businesses that demonstrate resilience and adaptability during an economic downturn. MSMEs should highlight any measures they have taken to pivot or adapt to changing market conditions. This could include diversifying revenue streams, cutting costs, or entering new markets. Showing the business is proactive and prepared to navigate challenges can instill confidence in lenders.

With our #MakingOfTheNew initiative, Protium remains committed to empowering MSMEs through innovative and inclusive financial solutions that drive business growth. By bridging the financial gap, we enable businesses to scale, adapt, and fuel their ambitions as they continue to play a vital role in shaping India’s economic future.