MSMEs will have to change their funding profile

CRISIL analysed the performance of 1,394 micro, small, and medium enterprises (MSMEs) that were rated on the basis of their 2013-14 (financial year April 1 to March 31) financials. The study revealed that while loans from banks/financial institutions account for 77 per cent of the total loans availed by these companies, unsecured loans from the promoters and their family members account for the remaining 23 per cent.

Currently, a majority of private limited or unlisted companies accept unsecured loans from promoters and their family members. The Companies Act, 2013, stipulates that all such deposits or unsecured loans accepted till date will need to be repaid, and the impact must be reflected in the company's financials. Also, under the same Act, a company can accept such loans provided that the amount has not been in turn borrowed by the promoters or their family members from some other source.

This provision is likely to impact companies that already have accepted such deposits/loans. This poses significant challenges for such companies to arrange for funds to meet their requirements. Availing of external funds might put pressure on the companies' gearing and also bring in additional costs of borrowing.