<h1>Financing and accounting tools for MSMEs</h1>

Financing and accounting tools for MSMEs

<h1>Financing and accounting tools for MSMEs</h1>

Micro, small, and medium-sized companies (MSME) are one of the important components that have contributed to the growth of the economy and the country. MSMEs provide job prospects for around 111.4 million individuals in the country.

Despite their contributions, MSMEs in India face a number of challenges.

They must always keep up with rapidly changing technologies or risk becoming irrelevant. They also face high finance expenses and are sometimes unable to identify their key competitive advantages in order to maintain product standards and quality. MSMEs must also address the issue of intellectual property protection as well as a labour shortage. Finally, MSMEs research has identified the availability of financial channels and access to these channels as the most crucial determinants in fostering MSMEs’ growth in emerging economies.

At each step of their life cycle, MSMEs encounter plenty of problems. In a study conducted on understanding financial challenges faced by MSMEs, it was found that companies in both the start-up and expansion stages evaluated each finance issue as difficult. During the survival stage, businesses did not see infrastructure, labour, labour law compliance, or enterprise registration to be barriers to receiving credit. At this level, businesses have access to appropriate personnel and infrastructure.

The most prevalent obstacles experienced by firms in the start-up and survival stages in receiving funding were difficulties in providing collateral or a guarantee, delayed loan processing, and a lack of awareness about available program.
The main barriers to receiving funding throughout the expansion stage were a lack of awareness about existing schemes, expensive service costs for processing credit applications, difficulties producing collateral, and high-interest rates. Enterprises wanting to broaden and grow into additional markets may have distinct financial demands, and they may be looking for short-term financing that may be obtained at more economical pricing.

Different types of financial sources for MSMEs:

  • Venture capital:

    Venture capital is growing as an essential source of funding for small and medium-sized businesses, particularly for startups and progress. An entrepreneur often begins a firm using his funds as well as money borrowed from a bank. It is during growth that they struggle to raise financing. Traditionally, MSMEs have relied on bank financing for expansion and operational capital. However, bankers have recently reduced lending to SMEs due to the increased risk of non-performing assets (NPAs) during a downturn. As a result, even though many MSMEs have profitable initiatives and development plans, they may find it difficult to obtain financing for their projects since bankers may be unwilling to support high-risk ventures.

    Apart from classic VC industries such as information technology (IT), VCs are increasing their reach into fields such as clean energy, healthcare, pharmaceuticals, retail, media, and so on.

    In the past few years, government-controlled financial organizations have taken significant and constructive steps to give MSMEs access to financing at acceptable and affordable charges and without the normal barriers. Venture capital financing institutions have been established to induce funds at a reasonable cost, share risk, and give management and technological up-gradation assistance to these firms. Government-funded program are available at both the national and state levels.

    The largest public financial institution participating in VC funding activities is the Small Industries Development Bank of India (SIDBI).

  • Factoring:

    Factoring is a type of receivables financing in which a firm sells or designates its accounts receivable (i.e. invoices) to a financial institution (a factor) at a cost in return for instant cash to finance ongoing operations. The delay in the repayment cycle by SMEs’ big scale clients harms their operational aspects and funds recycling activities.

    Factoring is a method of financing working capital for MSMEs. However, unlike typical forms of working capital finance, factoring entails the factor of purchasing the accounts receivable altogether rather than collateralizing a loan. Factoring offers working capital loans to small and medium-sized businesses (SMEs). Unlike typical forms of working capital finance, factoring entails the factor of purchasing the accounts receivable altogether rather than collateralizing a loan. The benefit of factoring in a bad business situation is that the factored receivables are excluded from the seller’s company’s debts and become the asset of the factor.

Government finance sources:

Given that banks are India’s primary source of credit, the Reserve Bank of India has included micro and small companies on its list of prioritised lending segments. Banks have also been encouraged to achieve a 20% year-on-year increase in loans to micro and small businesses, as well as a 10% year-on-year increase in the number of microenterprise clients.

Some of the government announced schemes for the development of MSMEs:

  • Pradhan Pradhan Mantri Mudra Yojana (PMMY) scheme was launched in April 2015. This program offers loans of up to ten lakh rupees to non-corporate and micro-enterprises. Under PMMY, such loans are classed as MUDRA (Micro Units Development and Refinance Agency Limited) loans.
  • The Prime Minister’s Employment Generation Programme (PMEGP) is the combination of two schemes: the Prime Minister’s Rojgar Yojna (PMRY) and the Rural Employment Generation Programme (REGP). This program aims to provide youth and conventional artisans with self-employment prospects via micro-enterprise firms in the non-farm sector. Khadi and Village Industries Commission (KVIC), which serves as the national nodal organisation for this initiative.

    Banks that offer MSME loans: Many MSME loans are offered without collateral by banks. Some of the banks which offer different loan schemes are State Bank of India, HDFC Bank, ICICI Bank, Axis Bank etc. Some of the financial institutions that offer loans to MSMEs are NBFCs, Small Finance Banks (SFBs), Regional Rural Banks (RRBs) and Micro Finance Institutions.

    Accounting depicts a company’s financial performance. Verifying financials and updating accounting records to keep track of the firm’s financial status may be a time-consuming procedure for any small or medium-sized organisation. Accounting information involves several complex situations, large operating budgets, and massive ledger data. Whether a firm is little or large, it has inadequacies in handling enormous account books and playing with sufficient instruments and other functions are helping enterprises from smaller towns to interact with the country’s mainstream growth. Practising good financial recordkeeping and utilising the best accounting software results in a flexible and effective accounting approach.

  • Tally:

    Tally is one of the best accounting software in India for small businesses, with a market share of more than 75% and 2 million company customers. As recent revolutionary reforms enter India’s financial accounting system, Tally leads the list of accounting software taking GST statutory laws under consideration. Tally has error detection features that reduce the likelihood of GST return rejection.

  • Zoho books:

    The Zoho Books Accounting Software is the most recent addition to the accounting software market. It is a cloud accounting software, which can be visited from any device that has Internet connectivity. Zoho Books is GST compliant, automates corporate operations, controls financial accounting, and aids in departmental management from a specific source. Zoho Books is among the most popular accounting systems for expanding businesses, according to financial experts.

  • Marg:

    Marg, which was founded in 1992, delivers customised solutions based on the needs of each sector. Marg is an India-based GST-enabled inventory and accounting software that simplifies GST billing and reporting. Marg is a trade-specific solution that is both inexpensive and configurable in terms of functionality. The program is simple to deploy and allows you to construct functionality for business assistance with over 2500 software configurations and 500 training videos.

  • Vyapar:

    Vyapar is the best accounting software for small enterprises in India. Accounting software is a free application that helps to keep track of invoices, transaction data, manage books of accounts, and track daily business operations all while concentrating on the company’s development rate. Vyapar is an effective option because the majority of small businesses require a digital update. Vyapar is GST compliant, allowing for error-free tax filings while avoiding mistakes caused by human computations. Vyapar is in charge of controlling individual company units, creating personalised invoices, and automating payment reminders.