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Small and medium enterprises (SMEs) are the backbone of the Indian economy, contributing to about 30% of the GDP, 45% of the manufacturing output and employing over 11 crore people. However, SMEs often face challenges in accessing adequate and timely finance for their growth and expansion. According to a report by the International Finance Corporation (IFC), the total credit gap for the Indian SME sector is estimated to be around Rs 31,665 billion.

Fortunately, there are several schemes and initiatives launched by the government and other institutions to support SMEs and startups with various funding opportunities. These include loans with low-interest rates, subsidies, relief funds, income-based tax credits, equity infusion, etc.

Government schemes for SMEs

The government of India has been proactive in ensuring that the benefits of these schemes reach the SMEs in time. The Union Budget 2023-24 focuses on ease of doing business for SMEs and provides several measures to boost their credit availability and liquidity. Some of the key schemes are:

●     Emergency Credit Line Guarantee Scheme (ECLGS): This scheme provides additional credit of up to 20% of the outstanding loans of eligible SMEs, with a 100% guarantee covered by the government. The ECLGS has been extended up to March 2023 and the guarantee cover has been increased by Rs 50,000 crore to a total of Rs 5 lakh crore.

●     Credit Guarantee Trust for Micro and Small Enterprises (CGTMSE): This scheme provides collateral-free loans of up to Rs 2 crore to micro and small enterprises, with a partial credit guarantee by the government. The scheme has been enhanced to facilitate an additional credit of Rs 2 lakh crore for micro and small enterprises in 2023-24.

●     MSME Self-Reliant India Fund: This fund aims to provide equity infusion of Rs 50,000 crore to SMEs through a fund-of-funds structure. The fund will leverage Rs 10,000 crore of government contribution to mobilise Rs 40,000 crore of private capital for investing in SMEs.

●     Raising and Accelerating MSME Performance (RAMP) Programme: This programme has an outlay of Rs 6,000 crore and aims to provide support to SMEs in various aspects such as technology upgradation, quality certification, marketing, branding, etc.

Other Funding Options for SMEs

Apart from the government schemes, there are other funding options available for SMEs in India, such as:

●     Venture capital and angel investors: These are investors who provide equity capital to startups and SMEs with high growth potential. They also offer mentorship, guidance, and access to networks.

●     Crowdfunding: This is a method of raising funds from a large number of people through online platforms. Crowdfunding can be used for various purposes such as product development, social causes, creative projects, etc.

●     Peer-to-peer lending: This is a form of online lending where borrowers and lenders can directly interact and negotiate the terms and conditions of the loan. Peer-to-peer lending can offer lower interest rates, faster processing, and flexible repayment options for SMEs.

How to choose the right funding option

While there are many funding options available for SMEs, it is important to choose the right one based on their needs, goals, and capabilities. Some of the factors to consider while choosing the right funding option are:

●     The amount of funds required and the purpose of the funds

●     The stage of the business and the growth potential

●     The risk appetite and the willingness to share ownership and control

●     The availability of collateral and the credit history

●     The time frame and the ease of access

How to prepare for funding opportunities

To seize the funding opportunities, SMEs need to prepare themselves well and showcase their strengths and potential to investors and lenders. Some of the steps to prepare for funding opportunities are:

●     Conduct thorough market research and analysis to identify the customer needs, the competitive advantage, the market size and the growth opportunities

●     Prepare a detailed business plan and a financial projection to demonstrate the viability, scalability, and profitability of the business

●     Maintain proper financial records and statements to reflect the financial health and performance of the business

●     Build a strong team and a network of advisors, mentors, and partners to support the business operations and growth

●     Create a compelling pitch deck and a presentation to highlight the problem, the solution, the value proposition, the traction, the milestones and the future plans of the business

●     Negotiate the terms and conditions of the funding and ensure compliance with the legal and regulatory aspects

SME financial evolution: NSE Emerge and BSE SME platforms

In recent years, the NSE Emerge and BSE SME platforms have emerged as crucial avenues for SMEs to raise funds. These platforms provide a unique proposition globally by offering a dedicated space for SMEs to access capital markets. The NSE Emerge and BSE SME platforms facilitate the listing of SMEs, enabling them to raise funds through initial public offerings (IPOs). This trend aligns with a broader movement towards access to capital for small businesses, fostering entrepreneurship, and encouraging economic growth. 

As these platforms continue to evolve, they contribute significantly to the financial ecosystem by providing SMEs with opportunities to showcase their potential and garner investments from a diverse set of investors. This development reflects a dynamic shift in the financing landscape, emphasizing inclusivity and support for the growth of smaller enterprises on a global scale.

Successful SMEs that got funding

Bazaar India – It is a fast-growing Indian chain of fashion, lifestyle and home products, providing products, ranging from clothing and footwear accessories to household items at affordable prices.

Urban Tots – Urban Tots is among the first companies in India that manufacture toys and sell them in modern retail outlets and direct retail outlets all over India along overseas. The company has also solved one of the biggest challenges in the toy manufacturing industry by producing its molds, which were later imported from China, Taiwan, Korea, France, Germany, and the UK. The company successfully raised 26 crores on the platform from marquee investors.

SMEs are the engine of economic growth and innovation in India. They have a huge potential to create employment, generate income and contribute to the social development of the country. However, they often face challenges in accessing adequate and timely finance for their growth and expansion. Therefore, SMEs need to be aware of the various funding opportunities available to them and leverage them for their benefit.

Rajesh Singla is the CEO and Co-Founder of Planify, a platform that connects entrepreneurs with investors for equity fundraising.