The importance of the manufacturing sector in India cannot be overstated. Micro, small, and medium enterprises (MSMEs) account for 45% of the country’s manufacturing output. The manufacturing sector contributes significantly to the nation’s GDP and employs millions of people directly and indirectly. The sector also contributes to India’s exports and propelled by the Make In India initiative, has further stepped up its contribution to meeting both domestic and international demand for India-made products.
There are also a number of challenges manufacturing industry faces. For instance, since the sector relies heavily on raw material imports and product exports as well as distribution, any disruptions, like broken supply chains, can impact them heavily. Supply chain disruptions caused by geopolitical tensions caused raw material prices to skyrocket, putting the sector under duress. These issues disproportionately impact MSMEs involved in manufacturing, because they have limited liquidity and resources to tide over such setbacks. Let’s explore the funding needs for manufacturing MSMEs and how they can go about raising funds for their business needs.
The manufacturing sector differs from other sectors in terms of business requirements it has. For example, machinery required by manufacturing businesses is very expensive, and needs to be updated or repaired periodically to keep them in optimum condition. This is a costly process, particularly for smaller businesses.
To finance these expenses, manufacturing businesses can opt for loan for manufacturing unit. These loans can fund machinery purchases and repairs, raw material purchases, overheads, employee salaries, etc., supporting the day-to-day operations of the business, as well as their long-term growth. However, funding for manufacturing companies from traditional banks can be difficult to access for MSMEs, as many of them don’t have collateral to leverage in order to obtain a loan. In such a scenario, they can opt for other lenders or forms of financing. Let’s explore the options that are available to manufacturing business when it comes to accessing financing.
If you are an MSME entrepreneur involved in manufacturing and are looking for a manufacturing business loan to finance your business needs, here are the lender options you can look into:
Business loan from manufacturing unit from banks is the traditional and most widely known option available to manufacturing business owners. However, there are certain caveats involved. For one, banks generally have very strict eligibility criteria, and can be reluctant to lend to MSMEs. They also require collateral against business loans, which MSMEs might not have. In addition to this, they tend to have long and complicated loan application processes and extensive paperwork requirements. It might take a long time for loans to be disbursed, making it difficult to use them as a solution for sudden business expenses, or as a way to fund requirements for big orders and other opportunities.
Microfinance banks are another option that MSMEs can explore to get a loan for manufacturing unit. However, their services are limited to micro-enterprises, which, according to the new categorization issued by the government are businesses that have a net investment in plant and machinery or equipment of up to Rs. 1 crore and a net turnover of up to Rs. 5 crores. If your business exceeds these limits, you would not be eligible for micro loans. If you are eligible, there are certain limitations to contend with, like the fact that these loans usually have a fairly low ticket size, which means that they might not provide sufficient funding for your business needs.
The most efficient way to secure funding for manufacturing companies is to opt for a non-banking financial company (NBFC). NBFCs have been leading the charge when it comes to delivering access to formal credit at the last mile. They have much more flexible eligibility criteria, and easier loan processes. Some of them offer collateral-free business loans with minimal documentation requirements. They also have digital loan processes in place, which can speed up the process and ensure that the MSME gets the loan in a timely manner, which is very important.
There are also some alternative ways to obtain manufacturing business funding. Investors do provide financing for manufacturers, but these might be difficult for MSMEs to access. Here are a few alternative options available to get a loan for manufacturing unit:
These are wealthy investors who provide capital for startups, often in exchange for partial ownership in the form of equity or convertible debt. Angel investors not only offer financial support but can also support business owners with access to valuable expertise and networks.
This method involves raising small amounts of money from a large number of people, typically through online platforms. There are various kinds of crowdfunding, such as reward-based, where investors receive a product or service in return, and equity crowdfunding, where investors receive shares in the company.
Also known as P2P lending, this option allows businesses to borrow money directly from individual investors through online platforms without the need to go through traditional financial institutions. It often offers more flexible terms and lower interest rates compared to conventional loans.
Kinara Capital is an RBI-registered NBFC that provides collateral-free business loan to support the growth of small businesses in the sector. Kinara is the best choice for MSMEs seeking small business loan, particularly manufacturing business loan, because the company provides fast and easy access to capital, ensuring that these businesses can get the machinery financing and working capital in a timely manner, without hassles.
Kinara’s unsecured business loan can be availed of through three easy steps by downloading their myKinara App. MSMEs can start their journey towards getting a manufacturing loan by taking a 1-minute eligibility check, followed by an end-to-end digital process. This is followed by fast and unbiased loan desicioning through the company’s proprietary AL/ML-based models. The loan is disbursed in just 24 hours!
Manufacturing businesses need a significant amount of funding to finance various expenses like high-priced equipment and raw materials, as well as long-term expansion plans. This can be difficult for manufacturing MSMEs as they have limited access to financial resources. They can opt for manufacturing loans to invest in their businesses, but these two can be difficult to acquire from traditional banks, microfinance banks, and alternative funding sources. The best option for manufacturing MSMEs of all sizes is to choose an NBFC that caters to last-mile borrowers.
Kinara Capital is a great solution for such businesses because the RBI-registered fintech NBFC provides business loans catered to the needs of MSMEs, and exclusive Machinery Loans for manufacturing units.
1. How small manufacturing business can get funding?
Small manufacturing businesses can obtain funding through various means, including loans from banks or NBFCs, or applying for government grants and subsidies.
2. What are some common challenges when seeking funding for a manufacturing business?
Given that manufacturing MSMEs typically do not have access to collateral, this can be a hurdle for them to secure funding. They can also come up against challenges such as unfavourable loan terms and trouble with repayment.
3. How can I determine how much funding my manufacturing business needs?
Develop a detailed business plan, including equipment purchases, inventory requirements, staffing costs, and any other expenses critical to scaling your operations, and then calculate the expenses involved.
4. What are some key financial metrics that investors look at in a manufacturing business?
Investors examine metrics such as gross profit margin, operating profit margin, return on assets (ROA), return on equity (ROE), inventory turnover, and cash flow statements. These metrics provide insight into the business’s profitability, efficiency, and financial health.
5. What should I keep in mind when raising funds through a loan?
Understand the terms and conditions of any loan you take. Also be aware of how you will invest the funds, and whether you are capable of repaying loans in a timely manner.
