A banker's checklist for MSMEs who want a loan
- The definition of micro, small and medium enterprises (
MSME) was changed to allow for relatively bigger companies to avail the benefits of cheaper and priority loans.
- But for MSMEs, while loans might be a tad bit easily accessible now, financial literature is still something they are learning.
- Sunil Daga, Sr EVP and Head, Business Lending solutions at
Kotak Mahindra Bankshares few pointers for MSMEs to think about while applying for a loan.
The Indian government has revised its focus on MSMEs and on May 13 said that the definition of micro, small and medium enterprises (MSME) will be changed to allow for relatively bigger companies to avail the benefits of cheaper and priority loans.
But for MSMEs, while loans might be a tad bit easily accessible now, financial literature is still something they are learning.
Keeping this in mind, Sunil Daga, Sr EVP and Head, Business Lending solutions at Kotak Mahindra Bank has a few pointers for MSMEs to think about while applying for a loan. Daga shared his thoughts during The MSME Exchange organised by Business Insider India and powered by Kotak Mahindra Bank.
#EmpoweringBusiness | The MSME Exchange: Your problem, their solutions— @BiIndia's @iyer_sriram in conversation wit… https://t.co/sJVeTotL5G— Business Insider India (@BiIndia) 1593775942000
Cut the overlap between a promoter and a firm
Daga’s first advice to MSMEs is to cut the overlap between a promoter and a firm. He believes that if MSMEs want to grow, they should segregate the two. The distinction between the both helps bankers realise the capital structure of the company, which brings us to the second point.
Daga pointed out that debt and equity are often used interchangeably in the same breath for MSMEs. “Small businesses only understand that it is money. But there are two components in the way businesses are run today – an equity portion that a promoter brings in and a debt that the firm brings,” he said.
Determining the capital structure of the firm will help the
Ability to bring money on board
The banker, while providing loans, also wants to see if MSMEs are able to bring some capital of their own. This makes their chances of getting a loan a tad better as the banker wants to see the skin in the game.
“Any MSME gets all kinds of products that a large company too would get from at least our bank. Banks can help you grow and expand your business but the risk capital has to come from Venture Capital or angel investments. There is promoter money and the money from the bank in the business. Today, the problem in the ecosystem is that the lines are blurred. For MSMEs to expand, they should have avenues to raise equity,” he said.
To know about Kotak Business Banking Solutions click here
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