MSME Financial Stability
MSME players lack professional advice and often rely on easy-to-raise, high cost – small value loans from NBFC. The constraining factors are lack of knowledge, organized data, CIBIL issues and collateral security to raise long term funds.
Case Study:
A FMCG distributor was achieving y-o-y growth; funded by NBFC. Despite high margins and zero bad debt, the distributor could not achieve financial stability.
Wise Leaf’s Analysis :
- The business gross margin was half the finance cost. This was eroding the capital. Further, stock was funded by low tenure term loan requiring heavy repayments. This twin situation led to disproportionate cash outflow & constant fund requirement.
- The default credit rating and limited collateral security allowed no scope for right credit line.
Wise Leaf’s Solution:
- Low-cost rotating credit line was established with an arrangement to permit foreclosure of NBFC loan from sanctioned limits.
- Pro-rata limits were released pending full collateral coverage and Limits were sanctioned with mere 0.35x collateral coverage.
- Going beyond the scope, CIBIL rating was rectified for our client.