A study by Paisabazaar reveals that India’s micro, small, and medium enterprises (MSMEs) are grappling with significant liquidity challenges. Out of 80 lakh business loan applications on Paisabazaar in the last 10 months, nearly 70% were driven by immediate financial needs such as working capital expenses, raw material purchases, and debt consolidation.
The report by the lending platform highlights that the majority of MSMEs sought loans to cover day-to-day operational expenses, including salaries, rent, utility bills, and payments to vendors and suppliers. Only a small fraction, less than 30%, applied for loans to fund future growth initiatives like marketing, brand building, machinery upgrades, or office space expansion.
Working capital needs
The study underscores that 45% of loan applications were motivated by working capital needs, reflecting ongoing cash flow gaps faced by small businesses in managing routine operations. Additionally, 24% of applications were aimed at acquiring raw materials to maintain inventory levels, while 2% were focused on consolidating existing debts.
Geographically, loan demand was concentrated in metro cities, with Delhi NCR and Mumbai leading the charge. Together, the top seven metro cities—Delhi NCR, Mumbai, Hyderabad, Bengaluru, Kolkata, Chennai, and Pune—accounted for 53% of applications. Non-metro regions, including Jaipur and Surat, contributed 47%, with an increasing year-on-year share of demand from these areas.
While a small segment of business owners prioritised growth-related investments, 15% sought loans for marketing and customer acquisition, and 9% aimed to upgrade machinery or invest in technology. About 3% applied for loans to expand office spaces or purchase additional facilities. These trends point to a pressing need for financial support among MSMEs, especially in manufacturing, retail, and seasonal industries.
