Grow Your MSME with Business Loan for Traders

August 30, 2023
Updated on

One of the largest sectors in India, trading is an important sector as it plays a significant part in sustaining the country's economy. India, rich with vast natural resources and skilled labour, is one of the fastest-emerging trade dynamos globally. Considering the support and employment that is generated from export and import, the government has recognised retail and wholesale traders as micro-small-and-medium enterprises (MSMEs). Nitin Gadkari, Minister of MSME and Road Transport and Highways, stated that the government had revised the guidelines to include retail and wholesale traders as MSMEs. There are many financing options like business loans for traders offered by financial institutions, banks, and NBFCs that help them expand and grow trading businesses. 

Traders serve as an essential link between manufacturers of goods and consumers. To keep their business running smoothly, traders require stable working capital. If a small business is unable to maintain good cash flow, taking a business loan for traders can help them out.

Classification of MSMEs

As per the MSME Act 2006, MSMEs were classified according to the amount of capital invested in plant and machinery. Micro enterprises were described as manufacturing businesses with an investment of less than Rs. 25 lakhs and service enterprises with an investment of less than Rs. 10 lakhs. Similarly, the investment limit for small-scale manufacturing businesses was set at Rs. 5 crores, while the limit for service businesses was set at Rs. 2 crores. Any enterprises with investments above this threshold will be classified as medium-sized businesses.

According to the revised Act, the classification of MSMEs will now be based on their annual turnover. The Government has approved the revised definition of MSMEs in the country. The MSME sector will now be classified based on turnover as well as plant and machinery valuation.

Here is the classification of MSMEs as per the MSME Act 2020:

  • Micro units – Investments up to Rs. 1 crore, and turnover of less than 5 crores.
  • Small units – Investment up to Rs. 10 crores, and turnover of less than Rs. 50 crores.
  • Medium units – Investments up to Rs. 50 crores, and a turnover of less than Rs. 250 crores.

Benefits of the new classification of MSMEs

The new definition is important for all MSMEs because it has tremendous advantages. These include:

  • MSMEs will get loans under the priority sector lending scheme.
  • 25% share of government and government-owned companies' procurement.
  •  Promoters are being permitted to bid for troubled assets under insolvency law (unlike large companies).
  • Occasional relief from the government and regulators.
  • MSMEs need not register for GST if a company has an annual turnover of less than Rs. 40 lakhs.
  • The Government has extended the ISO MSME reimbursement scheme to improve the MSME sector and provide better financial assistance.

Previously, the amount of money that could be invested could not exceed Rs 10 crores. Now, enterprises will have more resources to modernise their facilities, which will help them succeed internationally, thanks to the revised expenditure classification of Rs 50 crores. This provision also exempts exports from the calculation of turnover, allowing MSMEs to expand their exports without the fear of losing their MSME status.

In 2017, the Government of India removed retailers and wholesalers from the MSMEs category. But as of 2 July 2021, the Ministry of MSME has issued a memorandum to include retail and wholesale trade back into the MSMEs. This will enable the sectors to access priority sector lending, register on the Udhyam Registration Portal, ECLGS scheme expansion and many various benefits offered by the Government of India. 

Grow your MSME with collateral-free business loans

Challenges Faced by Small Business Traders

Despite the support and help provided through business loans for traders, there are also specific difficulties that Indian traders have to face today. To bridge this gap, NBFCs like Kinara Capital, offer an easy and straightforward way with minimum documentation that can help them get the required funds to expand their small business. 

Here are a few challenges that are faced by any business in the trading market and how a business loan for traders can make them sail smoothly past these challenges: 

Inadequate Infrastructure

India lacks majorly in providing the trading sector with an efficient and smooth infrastructure. Infrastructure includes multiple sectors, such as power, communication, water, and waste. Unfortunately, the not-so-advanced and developed transport and infrastructure pose the following problems for the traders:

  • Congested ports
  • Congested roads
  • Lack of connectivity
  • Outdated rail equipment

Organisations that provide business loans for traders can help them overcome these challenges. With the capital obtained, the business owners can evade the infrastructure problems, making them a bit bearable. 

Low Credit Access

Credit access should be made simple and easy, especially for the MSMEs, as they are a major part of the world's economy and face several difficulties collecting or generating sufficient funds for the smooth functioning of their business. Here are a few challenges that they face when trying to gather an adequate amount of money: 

  • Collateral requirements
  • Lack of adequate awareness
  • Complex application procedures 

Document Heavy Process

There are many different documentation processes and certifications that traders need to go through to complete their trade. For instance, the documentation procedure in Indian ports is no child's play, and for food and pharmaceutical goods, submission of health and safety certificates is required. It is also advisable to plan ahead because certification authorities are only available round the clock or on some days of the week.

Delayed Payments

Customers are often facing their own working capital challenges and sometimes lack the liquidity to pay suppliers on time. Additional working capital can help circumvent the issues related to delayed payments. 

Fulfilling Large Orders

Manufacturers can have a minimum order requirement that may only be feasible with adequate liquidity. 

Apart from the struggles and challenges mentioned above, there are many more difficulties that a trader faces in India. Different sectors of business face different challenges. 

The business-to-business kind of import and export is one of the most emerging types of trading in India. In this type of trading, there is no involvement of the customer or the client, and one business is providing another business with its products. Thus there is a constant need for transportation, inventory, maintenance, and many other such things.

Ways to Utilize Business Loans for Traders

It is critical to plan a business, and it usually involves numerous considerations. So, it becomes essential to determine which area of a business would benefit the most from a cash infusion. Here is how MSMEs can use a business loan for traders:

To Hire and Train Staff

Small business owners may decide that allocating a portion of their loan to hiring or training their staff is a worthwhile investment for expanding and attracting new customers. Investing in their employees is a win-win situation as they will feel more secure and valued in their jobs, and they will benefit from their increased expertise and efficiency. 

Retaining existing employees is essential for growing the trading business. A business loan for traders will help them hire talented employees to ensure that their customers get the best experience.

To Advertise or Market the Business

MSMEs must consider allocating part of their funds to advertising their business or products. This can be done through online ads and social media outreach or through print ads or banners and hoardings. Some might be on the more expensive side, but they can fund them through a business loan for traders, and chances are, it will yield more visibility and attract more customers. 

To Grow Digital Presence

Getting a business loan for traders can help MSMEs fund improvements in their digital presence by listing their products on e-commerce like IndiaMART and Udaan, along with getting a website and Google Maps listings.

Buying Inventory in Larger Quantities

With the festive period approaching, small businesses need to be stocked up with inventory. As an added benefit, buying in bulk usually means getting a better deal from manufacturers and suppliers. Availing of a business loan for traders can help MSMEs take this advantage and allow their business to grow without any financial constraints.

Cover for Delayed Payments

Customers often delay payments, especially when it comes to small businesses. This can slow down their operations and may also cause losses. A business loan for traders can help weather this temporary cash crunch in case payments are delayed.

Everyday Operations

There are numerous costs associated with keeping the business running every day. The cost of daily operations can add up, from payroll to rent to marketing. Working capital or small business loans provide business owners cash to help them better manage their expenses and any business fluctuations. 

Such financing can also be a valuable tool for businesses that face extreme fluctuations in revenue due to seasonality. In such cases, small business loans can assist entrepreneurs in getting through the off-season.

Conclusion

In conclusion, the trading sector in India holds a pivotal role in the nation's economy, benefiting from its vast resources and skilled labour. The inclusion of retail and wholesale traders in the MSME category highlights the government's recognition of their significance. Business loans for traders offered by financial institutions, banks, and NBFCs play a vital role in fostering the growth and expansion of these businesses.

Despite the challenges posed by inadequate infrastructure, low credit access, documentation requirements, delayed payments, and the need to fulfil large orders, the availability of business loans equips MSMEs with the means to overcome these obstacles. The newly revised classification of MSMEs based on turnover provides various advantages such as priority sector lending, government procurement share, and exemptions, propelling the growth of these enterprises.

The potential uses of business loans for traders are extensive, ranging from hiring and training staff, advertising and marketing, enhancing digital presence, and purchasing inventory in bulk, to covering delayed payments and supporting daily operations. With the right utilisation of funds, MSMEs can not only address challenges but also capitalise on opportunities, ensuring their sustained growth and contribution to India's economic prosperity.

Kinara Capital, an RBI-registered systemically Important NBFC in India, provides collateral-free business loans to MSMEs in the trading sector to help them with their financial needs, ensuring that they get to run their businesses without any hindrance. To avail a business loan, small business owners can check their loan eligibility in the myKinara app, which is available to download from the Google Playstore or on Kinara’s website in under 1-minute. Once they clear the eligibility criteria, the applicant needs to provide minimum business-related and personal documents.

After the verification of the documents via the fully secured digital portal, the loan amount is transferred into the applicant’s bank account within 24-hours. For further queries related to Kinara’s business loans, give a missed call at 080-68264454, and the internal customer support team will get back with all the answers.

Check your Eligibility in 1-minute!

Check your Eligibility in 1-minute!

You may also like