How Can Small Businesses Deal with Emergencies?

Posted in Lending Articles By Sajhyadri Chattopadhyay-
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challenges borrowers face while taking a business loan

The role of the Micro, Small, and Medium Enterprises (MSME) industry has been paramount in the development of India’s economy. A report by the Confederation of Indian Industry (CII) and professional consultancy giant KPMG shows that MSMEs contribute almost 30% of the nation’s GDP. However, running a small or medium-scale enterprise or business comes with its own set of unique challenges and difficulties. 

How to Secure Your Small Business for Financially Uncertain Times

Running a small business demands adaptability and foresight. To fortify your small business against financially unpredictable times, consider these strategic steps – 

Diversify Your Banking Portfolio: 

As a business debutant, you might not have adequate resources to diversify your services or product offerings. However, you can try to diversify your banking relationships as an alternative. Instead of consolidating all your financial needs with just one bank, consider approaching different institutions for keeping your money, taking loans, etc. 

When opening an account with a new bank, conduct a thorough assessment of its strengths and weaknesses. Look for recent significant changes in its assets and financing sources to determine if it's too heavily invested in a particular industry. 

Explore Alternative Funding Sources: 

If securing a traditional bank loan proves challenging due to a lack of hard assets, explore alternative financing options. R&D grants from local or national governments can provide a financial boost. Additionally, seeking investors to raise equity can inject capital into your business, reducing your reliance on debt.

Reducing your leverage ratio by holding less debt can enhance your financial stability. The ideal debt-to-equity ratio varies by business, but minimizing debt can strengthen your position by ensuring more cash is available for daily operations. 

Also Read: Challenges Borrowers Face While Taking a Business Loan

Turn to Venture Capital: 

Several small businesses, mainly those from the tech sector, often approach venture capital firms for funding support. Venture capitalists provide a short-term source of capital, usually to startups and small firms, and move out their investments as the company grows in value. 

Remember to factor in all the costs associated with venture capital before making a deal. These include management fees and profit-sharing arrangements. Thoroughly research about the investing firm’s credentials, funding history, and current business relationships before choosing them. 

Establish an Emergency Fund: 

Prepare for unexpected challenges by setting up an emergency fund. Aim to maintain at least one-third of your typical monthly expenses in this fund. However, any amount you can set aside is valuable. 

Select a suitable location for your emergency fund, such as high-yield savings or money market accounts for easy access. Ensure you understand the process for converting assets to cash quickly if needed. Keep all relevant paperwork up-to-date and easily accessible in a secure location. 

You might also like: Tips to Start a Small Business for Young Entrepreneurs

What are the Challenges Faced by Small Businesses in India?

Before exploring the measures that you can take to fortify your business against financial crises, let’s dive into some key hurdles that small business owners could encounter – 

Limited Access to Capital: 

Obtaining adequate capital often proves to be a daunting task for small business owners. Convincing investors to come aboard your venture and take a risk can be a complex endeavour. As such, several entrepreneurs turn to Business Loans. Opting for equity sell-off can also be an alternative for capital acquisition but having to do it early in your business is expensive. 

Solution: Research and seek out alternate funding sources such as government schemes for MSMEs, angel investors, peer-to-peer (P2P) lending platforms. Before that, remember to chart a robust business plan to present to potential investors or venture capitalists.  

Maintaining Product Quality: 

You must be able to spend adequately to ensure your services and products have high-quality standards to achieve long-term success. They must not only satisfy your customers’ demands but also rival the production standards of your competitors. 

Solution: Utilise capital to invest in quality control measures, employee training, and customer feedback mechanisms to continuously enhance your product quality. This will not only retain your existing customers but also attract new ones through positive word-of-mouth.  

Shortage of Skilled Personnel: 

Small businesses function with limited employees. Efficient employee management forms the cornerstone of a thriving business. Many small-scale industries face a shortage of skilled workforce due to unavailability of capital, leading to organizational inefficiencies and haphazard execution of operations. 

Solution: Invest in training and development programs for your existing staff and hire experienced professionals who can oversee various aspects of your business. In short, you must have the financial capacity to be able to spend on talent acquisition and retention to grow your business.  

Efficient Cash Flow Management: 

Apart from fulfilling legal obligations like tax filing and obtaining permits, maintaining precise business accounts, and managing cash flow is crucial. Analysing your financial position through balance sheets can help you make informed decisions about your business's financial health. 

Solution: Consider using accounting software to streamline financial management tasks. Regularly review your cash flow statements to ensure optimal utilization of funds and identify areas for improvement. 

 

Securing your small business finances requires a proactive approach. But sometimes, you might still need financial assistance to get that little jumpstart for your enterprise. Choose a Business Loan from Bajaj Markets for this purpose and benefit from an easy online application process, simple eligibility criteria, and quick disbursal of funds. Enhance your financial resilience and adaptability, preparing your business for whatever challenges lie ahead. 

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