The term ‘small and medium’ is defined differently worldwide for different companies and their size. The duration depends on the sizing and categories under its country’s period. It relies on several factors such as number of employees, annual turnover, number of assets owned by the company, etc. SMEs constitute a majority of businesses worldwide as the years have seen many online businesses grow through setting up small enterprises with independent resources and help from the government. SME resources help companies set up their enterprise and generate income through funding. This allows many new businesses to start right away without the issue of cash crunch.
SMEs in India
As per data from the Ministry of Micro Small and Medium Enterprises, India has approximately 6.3 crore MSMEs. The latest date is November 26, 2021. Registered small enterprises are at 293,555 (5.09 %) and midsized enterprises at 32,959 (0.57%). The Indian sector contributes about 29 % towards the GDP through its national and international trade. Even though small and medium enterprises contribute significantly towards India’s GDP, their limited resources for technology and inefficiency in trade operations have pulled them on a course that has reduced their efforts from pulling in more development. The SME sector saw a 46 %decline during the 2020 pandemic and subsequent lockdown due to a lack of digital presence; however, during the 2021 lockdown, there was only an 11 % decline after enterprises set up online stores and made their presence known. . The SME (small and medium enterprises) platform is expected to witness more than 60 SMEs launch their market in one fiscal year (2021-22) to bring up equity funds to meet their business requirements. The Ministry of MSMEs has realised their potential in going on a digital ladder and has been converting most of their SMEs online. Their goal for 2021 is to double the Indian economy to US$ 5 trillion in five years. The goal has been kickstarted by providing career opportunities for youth who could serve as future key generators for income through these businesses.
Every small business enterprise needs capital to raise its platform with thousands of other businesses climbing on the wagon; finding sources for them could be tricky. The government always provides loans, but that is guaranteed through several terms and conditions, and eligibility criteria which only the government could approve. There are several schemes and initiatives by the government to help these businesses. But they are still attached by eligibility criteria which could take a lot more time than intended. However, when there is an urgent need for funding and they do not fall under the government categories, we can approach SME resources. These resources help the business start right away without any waiting criteria.
1. Merchant Cash Advance
We all go through a cash crunch at some point in business. It could be due to overstocking or not making enough profit in a particular month for the next purchase. Therefore, when there aren’t enough inventory funds, merchants could always receive advances from receivables. Here, the concept is that Merchant Cash companies provide funds to the business in exchange for the business’s daily income percentage through credit/debit business. These aren’t loans but rather a sale of debit/credit cards. The payment is settled off after the merchant pays the percentage.
2. Invoice Financing
Invoice financing is a short-term loan provided by the bank or a lender and could be extended based on the unpaid invoice. This is a way for merchants to borrow money from the lenders to hold the fort until the customers fill their dues. This helps in cash flow and business growth without stopping them from waiting for their customers.
3. Accounts Receivable Financing
This method is quite similar to invoice financing but at a more extensive base. Accounts receive financing, allowing companies to receive early payment on their outstanding invoices. A company using receivable financing commits its unpaid invoices to a funder for an early price in return for a fee.
4. Business Credit Score
This process is quite similar to the one we go through when we attain credit cards from the bank. Small and medium businesses are offered a credit score based on their transactions. The agencies monitor the business’s financial stability to assess them in their operations. Obtaining a good credit score helps them gain fundings or credit cards without having any recommendations.
5. Business Credit Card
SMEs can now have credit cards and instant credit for business expenses. A good credit score would help them access a card with added credit, and these cards could bring relief during a cash crunch and help them keep track of the transactions.
6. Government Initiatives
In November 2021, the Indian administration launched the Special Credit Linked Capital Subsidy Scheme for the services sector. This scheme will help enterprises meet various technical requirements.
- In July 2021, Lok Sabha passed a decree on ‘Factoring Regulation (Amendment)’ to accelerate the payment eco-system for MSMEs.
- In the Union Budget 2021-22, the government announced funds worth Rs. 10,000 crore for Emergency Credit Line Guarantee Scheme (ECLGS) for eligible MSME borrowers, thus significantly boosting the sector.
How Do We Support SMEs in Our Country?
The Ministry of MSME runs various schemes to provide credit and financial assistance, skill development, infrastructure upscale, marketing strategies, technological and quality upgrade, and other services for MSMEs across the country. The government should invest more in providing end-to-end services for tech-deprived businesses and improve a segway to internalise benefits from medium enterprises to extensive industrial areas. Academic research could provide product innovation studies to further improve and compete against international standards.
The key takeaway is that resources are available through government and private sector, and technological assistance. Sources for schemes and policies are available on the web through the Ministry of Micro, Small and Medium Enterprises. These businesses have a shot at achieving their goals and making it big through retail and digital platforms with these resources.
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