Micro, Small & Medium Enterprises (MSMEs) constitute a substantial part of India’s economy as they generate significant employment opportunities for the population. Like every business, MSMEs also require financial assistance from time to time to buy the latest machinery, upgrade infrastructure, expand operations, increase inventory, purchase office space, and pay monthly salary or daily wages to the employees.
To acquire funds for managing a company, an MSME loan is a great option offered by financial institutions to start-ups, small enterprises, and women entrepreneurs. An unsecured form of credit, an MSME loan for new business, helps grow businesses by minimizing potential loss factors and generating steady revenues for overall expansion. Easy to obtain at an affordable interest based on the borrower’s profile, business history, and loan amount, MSME loans are an ideal source to acquire money for dealing with planned and unforeseen business expenses.
Read on to know why an MSME loan is an ideal choice for business owners in India.
The most important aspect of an MSME loan is that it comes without any security or collateral obligations. The candidates do not need to pledge any asset to the lender against the loan amount and, as a result, could live a stress-free life without having to worry about becoming a defaulter at any point and losing the asset.
- Quick processing and disbursal
An unsecured form of credit, MSME loans involve minimum paperwork, and in the current pandemic era, even the application and KYC verification can be quickly made online without stepping outside. With a paperless and contactless process, the financial institutions fast approve and disburse the loan amount. You may require the funds immediately if you need to deal with a business emergency.
- Total control
While funds can be arranged for starting or expanding a business from various avenues, such as private investors or venture capitalists, they demand a stake over the enterprise and its revenue model in a specific capacity. On the other hand, lenders such as banks or NBFCs offer MSME loans without any such compulsion, providing a sigh of relief to small or medium entrepreneurs. They do not want to share the company’s control with anybody.
- Eligibility Criteria
The required eligibility for an MSME loan for a new business is as follows:
– Candidate must be of a minimum of 22 years while applying for a loan and at most 65 years of age at the time of loan maturity.
– Candidate must be involved in the current business for at least three years with a total of 5 years of business experience.
– The annual turnover for the current business must be at least ten lakhs with the documented proof of running a minimum of 2 years in profit.
– The candidate must possess previous income tax returns and compliance certificates for the business.
- Attractive interest rates
One of the crucial factors while opting for a loan is the interest rate, which determines your overall loan cost and EMIs. While many loans charge a hefty interest rate, MSME loans are usually offered at a competitive rate which could help small business owners establish their enterprise.
- Short-term business goals
With short repayment tenure between 1 and 5 years, MSME loans are mostly used to fulfil short-term objectives of small or medium-sized businesses, offering certain flexibility to the borrower in managing the cash flow and allocating the resources efficiently for business needs. Emerging entrepreneurs can plan their finances to borrow the loan and repay the debt without creating a hole in the pocket.
- Growth opportunity
Designed to handle diverse needs of an organization effectively, MSME loans can help in buying raw material or equipment, meeting operational costs, procuring assets and inventory, fulfilling working capital requirements, etc. Therefore, MSME loans could play a pivotal role in expanding an enterprise when handled efficiently.