The nationwide lockdown to control the spread of coronavirus had put a halt to business operations across the country, especially affecting small and medium businesses. While the lockdown created havoc amongst industries like automobile, it proved to be a unique growth opportunity for industries like EdTech. 

It is still tough to believe that – The whole economy was at a standstill for around two and a half months since mid-March 2020.  And, every concern revolved around survival.

Then after a long pause, the government decided to re-open industries while maintaining preventive measures with Unlock 1.0. But, the lack of money movement made it difficult for businesses to kickstart their business operations again. 

To overcome difficulties and survive, businesses need to strike a balance between cash inflows and outflows. And, it is only possible with effective working capital management. 

However, the difficulty in raising funds from formal sources in India has plagued survival for many SMEs. 

Let’s understand why SMEs should consider options apart from banks to avail loans, especially during such unprecedented times. 

Limited scope under Priority Sector Lending (PSL)

PSL is an important role assigned by the Reserve Bank of India (RBI) to banks for providing a specified portion of lending capacity to specific sectors. These sectors include agriculture, MSMEs, export credit, education, housing, renewable energy, and social infrastructure.

Today, this specified portion of the bank’s lending capacity is capped at 40%.

This guideline was set in 1967, and since then, the economic landscape of India has changed remarkably. Unfortunately, the scope of PSL hasn’t changed accordingly.  Because of this, a lot of startups and MSMEs remain excluded from PSL and suffer from the lack of credit availability from formal sources. 

The spread of coronavirus accelerated this issue and forced the government to take cognisance. RBI amended the guidelines to include startups under PSL and removal of limitations for certain MSMEs. 

But, the question remains the same! Is this enough for small and medium enterprises in India to survive? 

Stringent guidelines for working capital loans

In India, banks are wary of providing business loans to startups and new SMEs due to the following reasons. 

  • Too much risk attached to new revenue models of startups or small businesses
  • No access to correct information to understand business concepts

Since RBI has mandated the banks to give around 40% of their lending capacity to priority sectors, the banks are more prone to losses if any of the priority sectors are unprofitable. 

Suggested Read: How to Plan Your Business’s Working Capital Requirements

To counteract such vulnerabilities, banks set up stringent requirements for the availing of business loans or other credit facilities. Some of the requirements are as follows. 

  • Audited financial statements 
  • Detailed books of accounts or information
  • High CIBIL score

Sceptical business owners

Since a business loan sanction needs a large number of data points, the budding entrepreneurs become suspicious about availing loans from banks. 

Some small businesses remain out of the lending scope because of the collateral requirements of banks in an era of asset-less business models.  

Now, we understand that the reasons why small and medium enterprises should look out for options other than banks. The real question is- where to look out or which option to consider?

Don’t worry!

We, at Razorpay, always strive to simplify business operations for small and medium businesses. And, we have built a solution too. 

Working capital loans by Razorpay is designed to meet capital requirements such as raw materials purchase, factory overheads, etc. of MSMEs. 

Razorpay has partnered with banks and NBFCs to provide collateral-free loans to businesses during such difficult times and bridge credit demand-supply gap for MSMEs. 

Here’s why Razorpay is the best solution for your startup or MSME.

  • Less documentation and collateral-free loan disbursement within a day
  • Risk assessment is done based on cash flow, your business performance, customer satisfaction and growth potential 
  • The profitability and vintage often take a backseat with realistic growth rates of the business becoming a key factor for loan assessment 

Eligible merchants can apply from the ‘Loans’ tab in their dashboard. Once you complete the online application, you will get a personalised loan offer in less than 3 working days followed by a quick loan disbursal. 

This product is accessible to our merchants and can be repaid easily through settlements. Avail it now for your operational needs and don’t let the pandemic put a halt to your business growth. 



Empowering users with information to make the right decisions.

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