Over 70% of MSMEs Rely on Business Loans for Immediate Financial Needs: Study

December 8, 2024 By: Gopal Agarwal0 comments

A recent analysis highlights that more than 70% of micro, small, and medium enterprises (MSMEs) and self-employed individuals seek business loans to address urgent financial needs. These needs primarily include working capital expenses, raw material procurement, and debt consolidation.

The study revealed that while the majority of MSMEs (over 70%) prioritize loans for immediate cash flow requirements, less than 30% of them seek loans to support long-term growth initiatives. Such initiatives include marketing and brand building, machinery upgrades, and the acquisition of office space for expansion.

Higher Demand for Working Capital

The analysis indicates that nearly 45% of business loan applications are driven by the need for working capital, highlighting the liquidity challenges and short-term cash flow gaps that businesses face in daily operations. Another 24% of business owners seek loans to purchase raw materials and maintain inventory, while 15% apply for loans to fund marketing and advertising campaigns aimed at customer acquisition and brand development.

This demand pattern reflects the operational realities of MSMEs, especially those in manufacturing, retail, and seasonal industries, where a continuous supply of raw materials and efficient order fulfilment are crucial for meeting customer demand.

Geographic Distribution of Loan Applications

Geographically, the majority of business loan applications (53%) come from top metropolitan areas, led by Delhi NCR and Mumbai. Other major contributors include Bengaluru, Hyderabad, Kolkata, Chennai, and Pune.

The remaining 47% of loan applications come from non-metro areas, with cities like Jaipur and Surat emerging as key contributors. Interestingly, while metro cities still account for the largest share of demand, the proportion of applications from non-metro regions has been growing steadily each year.

Investment in Technology and Machinery

Approximately 9% of self-employed individuals and MSMEs apply for loans to upgrade machinery and adopt advanced technology. This reflects a growing trend among businesses to boost productivity, reduce operational costs, and enhance product quality. Investing in modern equipment allows these enterprises to stay competitive in an evolving market landscape.

Conclusion

The study underscores the critical role of business loans in sustaining MSME operations, particularly in addressing immediate cash flow requirements. With a significant portion of loan demand driven by the need for working capital, it is evident that liquidity management remains a major challenge for MSMEs. The increasing demand for loans from non-metro cities highlights a shift in credit access across India, indicating broader participation from emerging business hubs.

MSMEs form the backbone of India’s economy, and ensuring timely access to affordable credit can play a pivotal role in their growth, stability, and contribution to the nation’s GDP.

• Business
• Debt Consolidation