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4 Financing Options Your Business Can Avail For A Steady Working Capital

The plight of MSMEs in getting finances is well documented by now. There are a host of reasons why small and medium-sized businesses still struggle to garner finances: collateral-related risks, large amounts of paperwork, long disbursement turnaround times, lacking creditworthiness, and a few other factors. But, is the situation still as grim for such businesses as before? A few years ago, such factors would have thwarted the growth plans of MSMEs by severely affecting their working capital management and cash flow. However, today MSMEs have a string of supply chain finance options, like MSME loans and collateral-free credit avenues, to get stable money to keep their critical operations continuously running. Some of the most useful options available to MSMEs are:

Digitized supply chain financing

Often, MSMEs may struggle with making payments to their suppliers continuously. This creates delays in the supply chain and increases their overall lead time. Service providers who offer the digital supply chain finance option can resolve this problem for MSMEs. Essentially, digital supply chain financing offers MSMEs and their vendors a steady stream of finance to sustain their working capital. This reduces the lead time and keeps their large-scale manufacturing activities unaffected. 

The best part about the digitized supply chain finance option is that other than checking the usual details, such as creditworthiness, credit score, loans repaid, and others, for verification purposes, service providers also check factors such as financial performance over the last quarter and potential future growth before providing finances. This ensures that most MSMEs have a chance to garner finances from such services. Additionally, such services are mostly digitized, meaning that they involve minimal paperwork and are, mostly, collateral-free. Another great feature of digitized supply chain financing is its low disbursement period for MSMEs to get financing.

Supply chain financing helps businesses clear all payments that need to be made to the vendors at the earliest, which helps both parties. MSMEs can establish better working relationships with their vendors through uninterrupted services ensured by supply chain financing. Vendors can also create specific production strategies for such businesses and provide supplies at a discounted rate for them. 

Besides, digitized supply chain financing services include the onboarding of all the vendors in one digital platform. This simplifies the process of vendor management, documentation, supply chain visibility, and communication for MSME suppliers.

From a vendor's perspective, they get steady finances that help them astutely handle their working capital management and cash flows. This aids their growth considerably.

Digitized supply chain financing may take time and investment for incorporation and implementation for businesses, but it is, by far, the simplest and most effective way of garnering finances. 

Collateral free loans

There are several financing companies that offer collateral-free loans to MSMEs. While the interest rates of such loans may be on the higher side and a high credit score (generally above 750) is required to get the loans, such financial avenues offer invaluable liquidity to MSMEs in exchange for no secured collateral, meaning that such businesses will not have to give up their expensive assets in case they're in the midst of a financial crisis and fail to repay the loans back to the lender.

Collateral-free Quick Disbursals

Collateral free loans are one of the most popular financial options used by MSMEs to fuel payments to suppliers and maintain their cash flows in balance and keep their businesses in the pink health. Generally, traditional lenders are extremely stringent about credit scores and overall credit history before approving credit or sanctioning loans for MSMEs. However, several tech-first financing companies provide collateral-free loans, MSME loans, and other novel financing options. These companies verify a multitude of factors, including the future financial performance and operational efficiencies of a given company. This makes the process of securing finances in the current time slightly easier for MSMEs.

Factoring 

Factoring is a unique debt financing instrument that businesses use when they deal in credit payments. Factoring service providers — normally referred to as factoring companies — provide liquidity to businesses in exchange for their trade receivables. Factoring companies pay a percentage of the amount of trade receivables (commercial invoices and other documents in which clients promise to pay businesses on a future date for purchases made currently) provided to them by MSMEs. Later, when the factoring companies receive the payments from the MSMEs’ clients, they pay the remaining percentage of money to the MSMEs after deducting a fixed interest and service fees from that amount. 

While selecting factoring options, businesses must opt for companies that provide non-recourse factoring — also known as the non-secured factoring option. With this type of factoring, if the MSME’s client fails to pay the amounts specified in the trade receivables to the factoring company, that loss/bad debt is borne by the factoring company and not MSMEs. While purchasing factoring, MSMEs need to consider a few factors, such as the disbursement turnaround time for the factoring company to pay MSMEs, the percentage of the receivable amount paid by the factoring company, the interest rates, and hidden charges involved, amongst other factors.

Crowdfunding

Crowdfunding is yet another heavily technology-driven financing option that has become popular recently. In this type of finance, several investors provide funding to a given company. Both lenders and MSMEs can receive all the information about crowdfunding-based transactions on a digital platform to simplify and unify information access. Crowdfunding can be classified into four types. The first type of crowdfunding, known as reward-based crowdfunding, works on the setting of offering rewards to investors if they pool in a certain amount of money. The second and third types, equity and debt-based crowdfunding offer investors the option of becoming a certified stakeholder in the company or offering funding to MSMEs in the form of a loan. Lastly, donation-based crowdfunding involves investors collectively making investments in the form of donations to a charity-based project.

If your MSME is looking for supply chain finance options with minimal paperwork and short disbursement periods, look no further than Bizongo. Our supply chain financing option and other digitized services can truly optimize and streamline your daily mission-critical operations. 

Kindly contact us to discover more about our supply chain finance services and digitized procurement solutions for your business.