How to Arrange Supply Chain Financing in India?

By | February 6, 2020

Supply Chain Finance For The Small Business

Currently, 6.11% of the manufacturing sector GDP is contributed by MSMEs. In terms of the service sector GDP, this rate goes to a high of 24.63%. 

Producing more than 6,000 products across the country, several types of financing options are necessary to maintain the smooth functioning of MSMEs.

From working capital to supply chain, different types of financing options aid in maintaining the production and functioning of these ventures; these are also crucial for MSME expansion as well. 

Especially in the case of small-scale enterprises, maintaining their chain of supply with adequate financing is crucial. 

Essentially, a short term financing option for businesses, it is crucial for budding entrepreneurs to understand the need for these lines of credit.

Why is an efficient supply chain necessary for MSMEs?

There are numerous types of business loans which are offered by different financial institutions. Among these options, supply chain financing is vital to maintain the cash flow of a business. 

The crucial benefits which are offered by this type of a financing option are listed below –

  • Maintaining cash flow: The primary objective of these types of financing is to maintain the cash flow of a business. This includes supplier payments in advance, delivery of products in credit, covering overhead costs, etc. that are vital to maintaining the production or service chain.
  • Increase in production: There can be situations when MSMEs want to increase their production. While this can simply be an overall expansion of the venture, it can also be a specific consignment or order that requires increased production. Supply chain finance options help in these situations since it provides the financial requirements to implement an increase in production.
  • Develop client relation: There can be situations in a business venture when an entrepreneur must provide their products or service in credit to develop client relations. This can also be necessitated to maintain loyal clients. These lines of credit help MSMEs in such circumstances by providing the necessary finance to complete their production.

It is advisable for every businessman to know supply chain management before choosing their financing option since this will ensure they plan their cash flow better.

What are the options to arrange supply chain financing?

While there are generally multiple options to fund the establishment of a business venture, options for supply chain finance are comparatively limited. 

The ways of arranging these lines of credit are discussed underneath –

  • Business loans – Business loans are the most convenient option for MSMEs to avail fast credit for their ventures. Numerous financial institutions offer these types of loans at economical rates of interest. 

Additionally, the loan amounts which are offered generally go up to Rs.30 lakh. Entrepreneurs have the option to choose any tenor ranging between 12 and 60 months.

Typically, application procedures for these lines of credit are also uncomplicated. NBFCs like Bajaj Finserv also provide pre-approved offers which make availing these loans prompt and convenient. 

  • Loan against property – These are high-value loans which are granted by financial institutions against mortgages. This can be an ideal option to arrange supply chain financing, especially since interest rates on these loans are quite low.
  • Angel investors – Angel investors offer convenient lines of credit, though the rate of interest demanded supply chain financing can be quite high. A major advantage of availing the aid of angel investors can be their advice and expertise in handling business operations. Entrepreneurs are best advised to check the background and track records of these investors before availing them.
  • Arranging supply in credit – Businessmen can arrange their supplies in credit. This requires an understanding of business owners with their suppliers to negotiate and come to convenient terms. This is one of the common options for financing of a small business.

Business owners should choose carefully among the above-mentioned options. Along with interest rates offered on them, it is vital to also pay attention to the additional features offered by them.

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