Over 70% MSMEs use biz loans for immediate financial needs: Study

Over 70 per cent of micro, small, and medium enterprises (MSMEs) and self-employed consumers are seeking loans to meet immediate financial needs, according to an analysis by Paisabazaar released on Thursday.

 

“Over 70 per cent of MSMEs and self-employed consumers needed a business loan to meet immediate financial needs like working capital expenses, purchasing raw materials, consolidating debt, etc,” the company's analysis showed.

 

Meanwhile, less than 30 per cent of these businesses applied for loans based on future growth prospects and initiatives like marketing and brand building, upgrading machinery, or acquiring additional office space for expansion.

 

Geographically, the demand for business loans is largely concentrated in top metro cities, led by Delhi NCR and Mumbai. The top seven metros, including Delhi NCR, Mumbai, Hyderabad, Bengaluru, Kolkata, Chennai, and Pune, account for 53 per cent of loan applications.

 

The remaining 47 per cent of applications came from non-metro regions, with Jaipur and Surat emerging as key contributors. According to Paisabazaar, while the top seven metros contribute to over half of the demand for business loans, the share of demand from non-metro cities has been increasing year on year.

 

As per the analysis, almost 45 per cent of business loan applications are driven by the need for working capital expenses, while 24 per cent of business owners need loans to purchase raw materials and maintain inventory levels. Meanwhile, 15 per cent of them seek loans for marketing and advertising purposes to help customer acquisition and brand building.

 

There is higher demand for working capital expenses, emphasising the liquidity challenges and short-term cash flow gaps faced by businesses in managing their day-to-day operations.

 

“Conversations with consumers suggested that their need for credit to meet cash gaps in working capital was to cover salaries and rent, pay utility bills, vendors, and suppliers, and to manage routine day-to-day operations,” Paisabazaar said.

 

Most of these MSMEs operate in manufacturing, retail, or seasonal industries, revealing that an uninterrupted supply was key for them to fulfil orders and meet customer demand.

 

Almost 9 per cent of self-employed consumers apply for loans to upgrade machinery and invest in technology, as they are focused on strengthening their productivity, reducing costs, and improving product quality through modern equipment.