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Working Capital Financing: Is it Really That Difficult for Startups and MSMEs?

Updated: May 17

Obtaining working capital financing is a significant hurdle for startups and Micro, Small, and Medium Enterprises (MSMEs). Despite their crucial role in driving economic growth, these businesses often struggle to access the funds they need to operate and expand. In this article, we'll delve into the key obstacles that startups and MSMEs face in securing working capital financing and explore modern-day debt products that can help address these challenges.

The Challenges

1. Limited Financial History

Startups and MSMEs often lack a robust financial track record, making it difficult for traditional lenders to assess their creditworthiness[1][2][3]. This limited financial history can lead to a higher risk perception, making it challenging for these businesses to secure loans.

2. Insufficient Collateral

Many startups and MSMEs do not have tangible assets or collateral to offer as security for debt financing, making it challenging to qualify for traditional loans[1][2][3]. This lack of collateral can make it difficult for lenders to recover their investments in case of default.

3. High Risk Perception

The inherent risks associated with startups and small businesses deter traditional lenders from providing working capital financing[1][2][3]. This risk aversion can lead to stricter lending criteria, making it even more challenging for startups and MSMEs to access funds.

4. Lengthy Approval Process

Traditional lenders typically follow a lengthy and bureaucratic approval process, which can be discouraging for startups and MSMEs in urgent need of funds[1][2][3]. This delay can hinder business operations and limit growth opportunities.

Modern-Day Debt Products: Potential Solutions

1. Cash Flow-Based Lending

This innovative approach assesses a business's creditworthiness based on its real-time cash flow data, rather than traditional metrics like credit score or collateral[2][3]. Cash flow-based lending offers a more flexible and inclusive financing solution, allowing startups and MSMEs to access funds based on their current financial performance.

2. Invoice Financing

This product allows startups and MSMEs to receive immediate cash against their outstanding invoices[4]. It helps bridge the gap between invoice issuance and payment receipt, providing much-needed working capital for day-to-day operations.

3. Supply Chain Financing

This type of financing enables businesses to optimize their working capital by extending payment terms with suppliers[3]. It ensures a smooth flow of goods and services, while also freeing up cash for other business needs.

4. Peer-to-Peer Lending

With the rise of online platforms, peer-to-peer lending has gained popularity[4]. Startups and MSMEs can borrow directly from individual lenders, bypassing traditional financial institutions. This alternative lending option offers flexibility and faster access to funds.

5. Revenue-Based Financing

This innovative approach allows startups to secure funding based on a percentage of their future revenue[4]. It provides a more flexible and accessible financing option, as repayment is tied to the business's revenue performance.

6. Digital Lending Platforms

Various digital lending platforms have emerged in India that offer working capital finance or trade finance to startups and MSMEs[2][3]. These platforms leverage technology and data analytics to streamline the loan application process and provide quick access to funds. They often cater to businesses with limited credit history or collateral.


At Dugain Advisors LLP, we understand the importance of matching the right debt product with the right entity. Our extensive experience in debt financing has taught us that tailored solutions yield the best results. We believe that by understanding the unique challenges faced by startups and MSMEs and leveraging modern-day debt products, we can help these businesses access the working capital financing they need to thrive.

What challenges have you faced in obtaining working capital financing for your startup or MSME? Share your experiences and let's discuss potential solutions


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