Over 70% MSMEs Seek Business Loans for Immediate Financial Needs, Reveals Study

Over 70% of micro, small, and medium enterprises (MSMEs) are relying on business loans to address immediate financial requirements, according to an analysis by Paisabazaar. The study highlights that a significant portion of MSMEs and self-employed consumers use loans for working capital, purchasing raw materials, and consolidating debt, rather than for long-term growth initiatives like marketing, brand building, or expansion.

The demand for business loans is especially high in major metro cities, including Delhi NCR, Mumbai, Bengaluru, Chennai, and Hyderabad. Together, these regions account for 53% of all loan applications. Interestingly, the share of loan applications from non-metro cities has been increasing year on year, with cities like Jaipur and Surat contributing notably to this growth.

The analysis further reveals that working capital expenses are the primary driver behind business loan applications, accounting for 45% of requests. Additionally, 24% of businesses seek loans to purchase raw materials and maintain inventory, while 15% use the funds for marketing and customer acquisition. This trend emphasizes the liquidity challenges faced by businesses, particularly in managing short-term cash flow gaps necessary for day-to-day operations.

The study also points out that many MSMEs operate in manufacturing, retail, or seasonal industries, where an uninterrupted supply of materials is critical to fulfilling orders and meeting customer demand. Furthermore, nearly 9% of self-employed consumers apply for loans to upgrade machinery and invest in technology, aiming to enhance productivity, reduce costs, and improve product quality.

In conclusion, the Paisabazaar analysis underscores the financial difficulties faced by MSMEs in managing immediate expenses and their growing reliance on business loans to address these challenges. The increasing demand for loans in both metro and non-metro cities highlights the urgent need for improved financial support for small and medium businesses across the country.