How MSMEs Can Manage Cashflow Challenges amidst COVID-19

By: Kaushik Khanna

Despite the various relief measures announced by the Government, many MSMEs are finding it difficult to meet even the bare business expenses like salaries, rentals, utility bills and statutory payments like taxes; given the current freeze in  production coupled with slowing demand. Lenders especially Public sector banks had taken a risk-averse conservative approach towards lending even before the pandemic hit the economy; now credit to MSMEs is all dried up.

RBI has introduced a cut in CRR, Repo and Reverse Repo Rates and has taken various other measures like TLTRO, Special refinance facilities to enhance liquidity with Banks, NBFC’s, MFIs, NHB, NABARD, SIDBI to enable them to deploy funds for lending. MSMEs with good credit profile can evaluate the below financing options in the current difficult times and once business resumes post lockdown:

• Avail loans/facilities through the special window and emergency credit lines rolled out by various PSBs and SIDBI to support during the current pandemic. MSMEs can avail a maximum loan of up to Rs.200 Crore or 10% of the existing fund-based working capital limits from PSBsat a flat 7.25% interest rate. Contact the relationship manager of your bank where you have a working capital loan to avail this facility.
• Small Industries Development Bank of India (SIDBI) has announced a concessional interest rate of 5% for MSME loans under the SIDBI Assistance to facilitate Emergency Response against Covid-19.These loans would be provided within 48 hours, with zero collateral and minimum paperwork but to only those MSMEs that are manufacturing products or delivering services related to the Covid-19 fight.
• Possibly the most widely-known government scheme for small business working capital loans is MUDRA(Micro-Units Development & Refinance Agency Ltd.) launched under the Pradhan Mantri Mudra Yojana or PMMY. Launched in Apr’15, MUDRA aims to develop and refinance the MSME sector by supporting the financial institutions lending to micro and small business entities engaged in manufacturing, trading and service activities.
• Launched in Nov’17, the ‘59 Minutes Loan Scheme’aims to make disbursal of loans much faster. Under the scheme, loans may be “approved” for an applying MSME in under 59 minutes, but the actual disbursal of the loan can still take up to a week. Loans range from Rs.10 Lakh to Rs.1 Crore with interest rates starting from 8%.
• National Small Industries Corporation Limited (NSIC) offers assistance to MSMEs for raw material procurement and marketing through the Raw Material Assistance and Marketing Assistance Schemes respectively. Amounts to be disbursed are taken on a case-by-case basis, with rates of interest varying between 9.5-11%.
• Apart from the above schemes, all Banks, NBFCs, SFCs, SIDCs, and SIDBI provide long and medium term loans like Term Loans/Equipment Loans/ Loan against property, Bridge loans for shorter tenor to meet short term cashflow mismatch, Working capital loans like CC/OD limits, Packing credit limits, Invoice and bill discounting, Supply chain finance, Venture Debt, Loans against financial assets like stocks, mutual funds, fixed deposits.
• Various private Banks, NBFCs and new age fintech platforms continue to lend and assure a complete digital application process in most cases. MSMEs with good credit profile can approach these lenders for quick financing needs. These loans however, are relatively expensive beginning at >12% interest rate but comes with speed.

It is imperative to not allow your credit rating and reputation to get impacted even in difficult times.It is extremely important to understand the gravity of the situation and plan every move ahead with a sense of conscientiousness and prudence. The government is doing a lot but more can be done. The government must come forward with further grants and relaxations to protect the interests of one of the most vital sectors of the Indian economy, the MSMEs.

(The author is National Credit Manager for SME Lending at Clix Capital)