How Factoring Is Bridging The Gap Between MSMEs And Traditional Banking

Micro, Small, and Medium Enterprises ("MSMEs") play a vital role in India's economy, contributing nearly 30% to the GDP¹. However, they often struggle to secure the working capital needed for their operations. Traditional banks impose stringent lending criteria, which MSMEs frequently cannot meet due to their lack of credit history, lower credit ratings, and inability to provide collateral.

Factoring bridges this gap by facilitating access to much-needed working capital finance for MSMEs, who may be unable to obtain sufficient bank financing.

What is Factoring?

Factoring is a form of "account receivables financing" that involves a business selling its receivables (money owed by customers) to a financial intermediary known as a "factor" or "factoring company".