Most conversations about the Indian economy and finance revolve around industry giants like Tata, Birla, Adani, and Ambani. While there’s nothing wrong with that, you must not forget that micro, small, and medium enterprises (MSMEs) make up 27% of the nation’s GDP.
Now, we are aware that there are many factors that make profitable entrepreneurship a possibility for small businesses in India. However, I feel that we don’t often acknowledge the importance of microloans and their role in debt relief for small businesses in the nation.
Given the challenges that small businesses face, microloans can be an effective tool to address their concerns. So, in this blog I will share with you the several aspects of microloans. This will help build an appreciation on how they deliver massive financial oxygen to small companies in India.
Know the Core Concept
Microloans are short-term loans of nominal amount. They are mainly available for emerging companies with limited means. This type of borrowing is typically smaller than the ones you can get from a conventional bank.
As a result, these loans are readily accessible to families with lower income or micro-entrepreneurs with little to no access to proper loaning facilities. This has been quite a success in India, with the valuation of microfinance loans reaching $3.35 trillion in 2023.
How do Microloans help Indian Small Businesses with Debt Relief?
Now, before we go any further, I would like to clarify that microloans are not a direct debt relief solution for anyone. But then again, making the proper use of these loans can help small businesses better manage their debts and reduce them.
I feel there are many ways how a micro-enterprise can use microloans in their debt relief efforts. Some of the most notable ways include:
1. Narrowing Gaps in Cash Flow
Every business needs a steady flow of funds to keep everything operational. However, seasonal fluctuations and unexpected expenses do not come with a warning and are often the primary culprits of cash flow disruption.
This is where microloans can become the ultimate saviour to help the entrepreneur make up for temporary shortcomings. As a result, even small business owners will get a better alternative to resorting to more expensive borrowings.
2. Debt Consolidation
Running a business in a country as diverse as India is not everyone’s cup of tea. As a result, I have come across many such small businesses that always juggle multiple debts. To make things worse, these lenders charge them increased interest rates, leaving them with no better alternatives.
This is where microloans can become an excellent alternative to conventional means of borrowing. Most importantly, this will help the business consolidate all its loans and focus on paying a single loan with lower interest. Naturally, this will always help them with better debt management and give them the means to grow their businesses.
3. Investing in the Future
Businesses are meant to scale and grow in order to outsmart the competition. But this becomes an uphill battle when you lack the resources needed to fuel that growth. So, getting your hands on a little extra capital can make all the difference here.
This is where microloans come into the picture and avail the small business owner of the resources needed to grow their business. What’s even better is that this will help them increase their income and clear their debts more effectively.
Concluding Thoughts
Hope now you have better clarity on how microloans can deliver the much-needed fund infusion for small companies in India. They get to better manage their repayments and get the impetus to grow and scale their business. Entrepreneurs should have access to these short-term debt management tools to give them the push to keep going.