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Tata Capital > Blog > Loan for Business > Top Challenges Faced by MSME/SME Financing in India

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Top Challenges Faced by MSME/SME Financing in India

Top Challenges Faced by MSME/SME Financing in India

Small and medium-sized businesses are the lifeblood of the Indian economy. They not only contribute to the nation’s GDP and export revenues but also employ thousands from marginalised or financially weaker communities. However, despite their significance, small and medium-sized enterprises face plenty of challenges in their establishment and growth.

Here is a look at some critical challenges faced by SMEs in India.

1. Lack of Credit

The cost of starting even a small business can be daunting, even if someone has an excellent idea or an extremely innovative product. Most SME owners look towards lending institutions to ease the cost of starting a business. However, not every one of these institutions is friendly to new business owners.

Therefore, the unavailability of proper credit is one of the most significant problems faced by SMEs. SME loans often come with complex documentation, the need for extensive collateral, strict repayment tenures, and higher interest rates. These can make it difficult for SME owners to opt for SME or MSME loans and quash their dreams of financial independence.

2. Lack of Advanced Technology

Lack of proper technology is one of the top challenges faced by small and medium enterprises in India. AI-based machinery and tools, Enterprise Resource Planning (ERP) technologies, and inventory management computer programs can make businesses more organised and enhance productivity.

However, since most MSME’s operate from rural or semi-urban areas, business owners are often not adequately educated about the software and hardware resources available to them. Even if they are aware of advanced accounting, management, or AI-based technologies, the price of purchasing a computer and software can be one of the most significant challenges faced by MSMEs.

To solve such issues, businesspeople can apply for small business loans meant for machinery purchase.

Additional Read: Did You Know these Things about the MSME Sector in India?

3. Inadequate Marketing

Even if a small or medium business has a remarkably innovative idea, it may not become profitable. This often happens due to a lack of proper marketing. Improper marketing of products and services is one of the main SME challenges that impact revenues negatively. An excellent way to solve this problem is to hire a top-notch marketing agency or a professional marketer.

However, such services are usually expensive, even if availed for the short term. Business owners can choose to learn marketing shortcuts, but these are hardly productive in the long run and often fail to deliver results.

The quickest way to overcome this SME challenge is to take an MSME loan for hiring employees. Nowadays, the government also extends several MSME loan schemes 2021. Once businesses have sufficient SME working capital to pay salaries or bills of marketing professionals, they can expect better reach and market performance.

SME challenges

Additional Read: Increasing Credit Gap for MSMEs & how it can be addressed

SME challenges and solutions

Realising the problems faced by small and medium enterprises, Tata Capital offers incredibly affordable SME loans. Tata Capital SME term loans start at business loan interest rates as low as 19%. Our repayment tenure is extremely flexible. We also allow borrowers to apply online with minimal documentation. To know more about our MSME loans, get in touch with us today!

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