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Corona carnage: Whopping 74% small businesses, startups may shutdown, scale down in next few months

Credit and Finance for MSMEs: The government had recently said that it is looking at increasing the credit guarantee to MSMEs to Rs 5 lakh crore from the present level of about Rs 1 lakh crore.

economic relief package, fiscal measures, industries, businesses, coronavirus, covid 19

Credit and Finance for MSMEs: A whopping 74 per cent small businesses and startups in the country are staring at shutdown or scaling down of their operations in the coming six months due to the impact of the Covid-19 pandemic, according to a survey of startups and SMEs based in more than 90 districts in India. The Coronavirus outbreak and subsequent lockdown announced by the government last month have hit small businesses and startups hard, crippling their cash flows and increasing their credit requirements even as many of them have been facing manpower challenges on the ground.

Out of the 13,970 responses from small businesses and startups in the survey carried out by community social medial platform LocalCircles, only 13 per cent responses claimed growth in the next six months while 61 per cent are looking at scaling down their businesses. However, 13 per cent and 7 per cent of the businesses might have to eventually shut down or get acquired by another business ahead respectively.

Recently in a meeting with the Commerce Minister Piyush Goyal, national MSME body FISME had urged the government to support small businesses in three key areas of concern. First, MSMEs’ inability to provide salaries to employees, second, the fixed electricity charges being paid every month over and above the energy charges despite factories being shut and third, monthly bank loan EMIs. “The three-month moratorium is not of much help as it simply extends the period. In fact, it has increased concern for MSMEs,” Anil Bhardwaj, Secretary-General, FISME told Financial Express Online.

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The survey highlighted the cash-starved situation of small businesses and startups as 47 per cent of the respondents had less than one month of cash left. 24 per cent had one-three months of cash at disposal while 23 per cent had three-six months of cash. Only 6 per cent of respondents had more than six months of runway. The government had earlier this month stressed on its focus to increase the credit guarantee limit for small businesses seeking credit.

“The minister informed that he is striving to increase credit guarantee to MSMEs to Rs 5 lakh crore from the present level of about Rs 1 lakh crore wherein 75 per cent of the advances granted by financial institutions are guaranteed under the Credit Guarantee scheme of the government,” MSME Ministry cited Gadkari as saying in a webinar with industry representatives. The Credit Guarantee Scheme for small businesses provides guarantee cover up to 75 per cent of the maximum loan amount of Rs 50 lakh, 85 per cent for loans up to Rs 5 lakh to micro-enterprises, 80 per cent for micro and small enterprises owned by women and all loans to units in Northeast region.

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