As a small business owner, you know that access to financing is critical for growth and sustainability. However, procuring loans can often feel like navigating a complex and confusing maze, especially for Micro, Small, and Medium Enterprises (MSMEs). These businesses usually face challenges that make securing the funding they need to thrive difficult. In this article, we will explore MSMEs’ challenges in loan procurement and provide strategies to overcome them.

Challenges Faced by MSMEs in Loan Procurement

While financing is crucial for MSMEs, there are several challenges they often encounter when attempting to procure loans. These challenges include:

1. Lack of Collateral

Many MSMEs struggle to meet traditional lender requirements, such as providing collateral for loan security. These businesses may have limited physical assets, making it difficult to secure the necessary collateral. As a result, they are often denied loans from banks and financial institutions.

2. Inadequate Credit History

Establishing a strong credit history is important for securing loans. However, MSMEs, particularly Startups, may have a limited or no credit history. Lenders rely on credit scores to assess the risk of lending, and without a robust credit history, MSMEs may face difficulties in obtaining financing.

3. Limited Financial Statements and Documentation

MSMEs often struggle to provide extensive financial statements and documentation required by lenders. They may have limited accounting systems or not maintain proper financial records, making it challenging for lenders to evaluate their financial health and repayment capacity.

4. High-Interest Rates and Stringent Terms

Even when MSMEs succeed in securing loans, they may face high-interest rates and stringent repayment terms. Lenders perceive small businesses as higher-risk borrowers, which leads to increased interest rates and strict repayment schedules. These conditions can strain the financial resources of MSMEs and make it challenging to meet repayment obligations.

5. Lack of Awareness of Available Financing Options

Many MSMEs are unaware of the diverse financing options available to them. They may primarily rely on traditional banks and overlook alternative funding sources, such as government schemes, venture capital, crowdfunding, or microfinance institutions. This lack of awareness limits their ability to explore all avenues for financing.

6. Inadequate accounting systems

Many MSMEs do not build adequate accounting systems and records that can explain past performance in sufficient detail, nor can support forward-looking financial projections. As a result, what the owners believe as the actual business performance may not match financial records.

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Overcoming the Challenges: How Astravise helps customers

While the challenges may seem daunting, MSMEs can take proactive steps to overcome them and improve their chances of securing loans. Here are some strategies that Astravise uses to navigate the loan procurement maze,

1. Preparation and Documentation of Financial records

MSMEs need to maintain and organize their financial documentation properly. This includes financial statements, tax returns, and other relevant records. At Astravise, we work with our customers to ensure that they have these documents properly in place, as expected by lenders.

2. Arrive at the needs of the business

Before we even start exploring funding options, we closely work with various stakeholders at the customer end to clearly understand the needs of the business and convert them into numbers that lenders can objectively evaluate.

3. Identify short-term/long-term actions to build creditworthiness

To enhance their chance of getting the desired funding, MSMEs must take steps to build and improve their creditworthiness. We identify short-term long-term actions that must be taken to build creditworthiness. We work with the management to address the short-term fixes. Astravise team analyzed the past records in the case of a logistics client and determined that a traditional working capital limit can easily be justified with commercial banks and could execute the required process to complete the sanction in two weeks. This fund flow gave enough time for the client to work on a mezzanine debt option for which the terms were negotiated by Astravise with the lenders. Gradually, these actions will help create a positive credit history, making it easier to procure loans in the future.

4. Exploring Alternative Financing Options

We help research alternative financing options beyond traditional banks. This includes investigating government-backed loan programs, grants, venture capital funding, angel investors, peer-to-peer lending platforms, and crowdfunding. Each option has its eligibility criteria and requirements; we work with our customers to thoroughly assess and choose the most suitable option for their needs.

5. Focusing on Business Performance and Cash Flow Management

A strong focus on business performance and cash flow management is critical for MSMEs to improve their chances of procuring funds. By consistently monitoring financial metrics and ensuring efficient cash flow management, MSMEs can demonstrate their ability to meet loan repayment obligations and address lender concerns.

6. Building a Strong Business Plan

Having a well-crafted business plan is essential for companies seeking financing. A robust business plan includes detailed information about the company’s objectives, financial projections, market analysis, and growth strategies. Lenders review these plans to assess the viability and potential of the business. We work with customers to create a compelling business plan that establishes their vision, market potential, and ability to generate a return on investment.

7. Discuss with the lender the terms and document it

We help negotiate terms and conditions that benefit our customers. We also advise them on specific terms that need attention so that our customers get the desired outcome. We also help document the terms clearly and educate the customers on the implications. Astravise has helped its customers to renegotiate processing fees, the collaterals, and other covenants regarding periodic reporting.

Conclusion

Navigating the loan procurement maze can be challenging for MSMEs, but it is not insurmountable. By understanding the challenges and implementing the strategies outlined above, MSMEs can improve their chances of securing the financing they need to grow and thrive. Astravise helps MSMEs prepare financial documentation and build a strong credit history to explore alternative financing options and avail loans with the best terms.

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