India, June 12: In an analysis of 50 active fundraising and transaction mandates, SMERGERS has found that six in ten small and medium businesses currently seeking capital on its platform are raising funds to meet working capital needs, manage cash flow, or service existing debt, not to expand or grow.
The finding cuts against the prevailing narrative of India’s SME sector as a high-growth engine and aligns with broader industry data pointing to a structural credit crisis. According to a SIDBI-CRISIL report, Indian MSMEs face a formal credit gap of approximately Rs. 30 lakh crore, a shortfall that has persisted despite successive policy cycles. The RBI has flagged repeatedly that small businesses remain among the most underserved segments of the formal lending system.
“These businesses have orders, customers, and capacity. What they lack is access to affordable credit,” said Vishal Devanath, Co-Founder and CEO, SMERGERS. “When working capital becomes the reason a business raises capital, it signals a systemic problem, not a business one.”
Key findings from the SMERGERS analysis:
●60% of businesses are raising capital for working capital, cash flow support, or operational continuity
●46% are seeking debt financing
● 40% are pursuing equity investment
● 14% are exploring a full or partial business sale
● 18% cited debt repayment or high interest burden as a primary transaction driver
The mandates reviewed span manufacturing, logistics, infrastructure, and services. A transformer manufacturer in Rajasthan is unable to execute an existing order book due to working capital constraints. A metal fabricator in Maharashtra is operating at 30% of installed capacity, with margins consumed by interest payments. An EPC company in Kerala is raising equity specifically to exit high-cost borrowing. A marine logistics firm is seeking capital to retire accumulated debt.
The stress is not isolated. India’s 7 crore MSMEs do far more than power nearly a third of the nation’s GDP. They serve as the true backbone of the economy, generating 46% of exports and securing livelihoods for 52% of the workforce. A 2024 Parliamentary Standing Committee report on MSMEs noted that access to timely and adequate finance remains the single largest constraint on SME growth, with a large share of businesses still dependent on informal credit at significantly higher costs. SMERGERS noted that financial stress is visible even among businesses that have taken the deliberate step of formally seeking capital through a structured platform, suggesting the problem runs considerably deeper across the broader SME population that has not.
The platform has also recorded growing investor interest in debt resolution and recovery services, a signal of a parallel market emerging around borrower stress within the ecosystem.
“Wider TReDS adoption, stronger credit guarantee frameworks, and continued directed lending for MSMEs are not radical asks. They are the baseline for keeping productive businesses productive,” added Devanath.
SMERGERS has over 23,000 business deals across 195 countries and 900+ industries. In 2025, new business transactions on the platform grew 11% year-on-year, with new investor registrations up 25%.