MSMEs can now get loans for expenses before customer payments

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Tiger Global and Y Combinator-backed payment gateway start-up Razorpay has added a new item to their digital lending solutions for MSMEs as it looks to additionally tap into the credit wants of small business firms looking to recover from the pandemic and overall economic dip. 6-old Razorpay, a full-stack financial services organisation which assisted companies including Zoho, Facebook, Intuit, Airtel etc., has tossed Cash Advance which is an unsecured line of credit for MSMEs to accomplish cash requirements prior to their customer payments. Presently, there are more than a dozen start-ups providing credit to MSMEs including Capital Float, Aye Finance, Indifi Technologies, Lendingkart, FlexiLoans etc in our country.

Debtors will be able to get the collateral-free credit facility within a few hours or immediately by keeping limit of Rs 50,000 to Rs 10 lakh according to their credit history and payments history. Razorpay already proposes working capital loans through its partner NBFCs and banks along with corporates for the businesses to manage expenses. The digital lending market proportion in India, as per Statistics, was almost $75 billion in FY18 and is expected to grow to $350 billion by FY23 out of which around $100 billion is expected to be lent to MSMEs.

Numerous market studies have emphasized the impact of COVID and lockdown on small businesses to withstand their operations amid a reduction in demand and capital. According to the analytics company Crisil, micro and small businesses have not been able to solve their working capital problems as competently as large and medium businesses. At present, there are over 6.3 crore MSMEs, 40 per cent of which have been capable of securing loans from the traditional formal ways including banks and lending institutions while the 60 per cent haven’t been able to get easy credit.

Whereas the government had announced about the Rs 3 lakh crore Emergency Credit Line Guarantee Scheme to aid COVID-hit MSMEs, but it had battered only 45 lakh businesses. Likewise, under the government outlines, businesses are asked to be qualified as an MSME, as clearly defined by the government to avail loans from banks, Razorpay told. Though, MSMEs including small manufacturers, e-commerce sellers and service providers required funds for continuing expenses even before they get payments from their customers and vendors. Razorpay’s Cash Advance offers relief by providing collateral-free loans before sales and payments happen, which ideally takes 5 to15 days for the small businesses, the firm stated.

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