As India approaches a new 2021-2022 fiscal year, a C2FO global survey of more than 6,700 small and medium-sized enterprise (SME) executives found a surprising alignment in terms of access to liquidity, cost of borrowing and their future prospects. .
The 2021 Working Capital Survey was conducted with the aim of measuring the financial health and prospects of SMEs in countries around the world. According to the International Monetary Fund (IMF), after a contraction in global growth of -3.5% in 2020, the world economy is expected to grow by 5.5% in 2021 and 4.2% in 2022.
The IMF has estimated that India will be the fastest growing economy in the world over the next two fiscal years, with expected growth of 11.5% in 2021 and 6.8% in 2022. However, the strength of recovery should vary. significantly in different countries, depending on political action and access to health care.
As COVID-19 gripped the global economy in early 2020, governments launched stimulus programs to help individuals and businesses affected by the pandemic. While respondents broadly echoed the uncertainty, SMEs are optimistic. Despite the challenges of 2020, respondents’ general optimism about their future business prospects was quite strong – with an average of 6.5 on a scale of 1 to 10. Indian respondents rated it at 7.5.
This universally positive outlook of successful competitors using tenacity and courage to adapt to ever-changing operating models, changing consumer demands and supply chain disruptions is evident. As the need for liquidity has increased in light of the pandemic, this demand has focused on limited funding sources, including new government loan facilities.
In India, the Union budget had focused on digital transformation and economic growth after the market recession caused by COVID-19. This should help in terms of ease of business and insolvency mechanism, as well as easing requirements for start-up funding. In addition, India’s mega INR 20 lakh crore stimulus package announced in May 2020 ranks among the largest in the world after financial plans announced by the United States (13% of its GDP) and Japan. (more than 21% of its GDP).
Rising borrowing costs illustrate a gulf between the haves and have-nots in the global market, a certain segment of SMEs do not have access to capital markets like large corporations do.
Government support has played a big role in helping businesses weather the pandemic, as 42% of those polled globally confirmed having received or requested funding from government programs, including loans, tax breaks, and government programs. money to pay workers. In India, around 50 percent of those surveyed requested government assistance, with the majority receiving benefits. These percentages reflect the profound impact of the pandemic and the role of governments in supporting their economies.
Economic instability and uncertainty over customer orders were seen as the biggest challenges fueled by the economic crisis that followed the COVID-19 pandemic. India ranks second on the list of countries most affected by economic instability at 61 percent, behind Turkey (73 percent). Spain (56 percent), Australia (54 percent) and the United States (50 percent) were other countries that made the Top 5.
In 16 countries around the world, the vast majority of respondents said they have no shortage of options for securing liquidity. They cited a wide range of funding sources, including revolving lines of credit, asset-backed loans, factoring, government support and supply chain finance.
Preferred choices for a business to finance itself included such modes as revolving bank line of credit (cash / overdraft credit), supply chain finance, invoice factoring, cash flow related to operations and private financing. As some companies sought government support, they also indicated that they were exploring options such as asset-backed loans, bill discounting (a loan in which accounts receivable are used as collateral) and loans between peers.
On average, 87% of respondents in 16 countries said they had enough cash for the next six months. In India, around 92 percent of respondents said they have access to all the liquidity (i.e. cash flow) needed to run their business over the next 6 months.
The biggest challenges in 2020 for obtaining business financing over the past year for Indian businesses were in the areas of high interest rates, difficulty obtaining a loan from traditional banking partners, difficulty in obtaining funding due to declining revenues, and the inflexibility and time-consuming processes to obtain money from other sources.
When trying out a new source of funding, respondents placed importance on considering interest rates, the amount of funds made available, flexibility and transparency of terms, and speed of payment. ‘approval, while other factors like ease of use / management, trust and reputation of the finance provider, personal relationships with a finance provider and whether the source of funds was secured or unsecured were also included .
Government guaranteed loans have been and will continue to be essential to the immediate survival of SMEs. However, alternative sources of financing and working capital solutions such as prepayment on approved invoices will be key to long-term business success. As SMEs move from survival to recovery, optimism for the future usually grows. As in previous economic cycles, this optimism is likely to continue, provided the growing demand for liquidity can be met through access to affordable working capital.
To read the white paper report summarizing the global findings of C2FO’s 2021 working capital survey, click here.
C2FO is the world’s largest working capital platform. We serve over one million businesses representing $ 10.5 trillion in annual sales in over 180 countries. Our online platform connects more than $ 125 billion of accounts payable and receivable daily. Whether you need working capital or have excess working capital, Name Your Rate ™ and the C2FO platform will respond to your request in seconds. You can accelerate or extend AP or AR on demand, giving you, your customers and suppliers greater control over cash flow. You can also use AR funding and other data-driven funding options.
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(With entries from ANI)
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