If ever any business mind wants to start a business, they usually collect their savings or funds but often this too gets short or simply you cannot risk each penny to start a business. There you can approach for MSME loan that can provide funds to support at the starting of any business on a small scale.
Not only in starting the business, but it also help the businesses that need to expand and grow due to various reasons like to increase incomes to meet the increasing inflation rate, etc.
What are the MSME loans?
MSME loans or micro, small and enterprise loan is unsecured credit, especially for the small-scale business owners, offered by the banks and NBFCs to support small business owners and woman entrepreneurs. There is no fixed loan duration. It all depends on different banks. The interest rate is also not fixed for every individual. It varies depending on the candidate’s profile, business history, and loan amount.
Reasons that support MSME loans
- Easily available: It often happens that there arises a demand for additional financial support for small-scale business entrepreneurs to meet the advance payments for the increased sale or to arrange the raw materials for additional manufacturing. Is such a condition, MSME is the best solution and it comes in handy due to its easy accessibility.
- Convenient process: As MSME loans are sanctioned based on GST records, the entrepreneurs do not require any security to be pledged. The regular payment of tax displays your business stability and profitability. Additionally, no financial statement from banks or balance sheet is required. Thus, there is no lengthy process involved to avail such loans.
- Interest rate: The interest rate charged by NBFCs and other financial institutions is reasonable and low. With proper planning, small-scale entrepreneurs can easily pay off MSME loan interest rates.
- Less paperwork: It is essential to produce a number of documents to avail of the unsecured business loans but if you apply for GST business loans, you have less pressure as these MSME loans for GST registered business requires limited documents. Additionally, you need not require to put any production equipment as security.
- Short-term financial products: The loan repayment tenure for MSME loans is between 12-60 months. It gives deadline for the business owners to pay off the interest and principal timely. The other benefit is that entrepreneurs can borrow new financial aid easily after clearing their debts fast and can also get rid of financial and mental pressures.
Essential things to qualify for MSME loans
- The first thing you need to produce is a well-designed and proper business plan. You also need to plan the strategies that will help to run the business and you can earn the profits to repay off the loan and interest.
- Business registration is a must for any new start-up or business running from years to qualify for any kind of government scheme or business loan.
- Profit and loss statement of your business may provide an extending help to present a picture of how previously your business was performing and this may help to get MSME loans easily
- A few years ITR files of your business as it shows your taxes and will help lenders to decide if you can be provided loans or not.
- A good credit history proves beneficial in getting the loans easily as it displays a good repayment history of your previous borrowings.
- GST and other registration documents for the business provides a compliance check to your business and makes lender comfortable to provide loans.
- It is mandatory to provide your permanent address proof.
- In the case of a co-borrower, it is compulsory to get the documents signed by the co-borrower as well.
- In case you are providing collateral documents against the loan, you need to submit the documents regarding it.
- Bank statement if the lender asks for it to know your income and expenses.
In older days, the financial assistance had many restrictions. However, under NBFCs schemes, these MSME loans have become exceptional lucrative for both the establishment and expansion.
The government has taken initiatives to promote ease of doing business in India by providing MSME loans to small-scale entrepreneurs. Such loans definitely support MSMEs even at the micro-level to grow and flourish their business. The above-listed benefits clarify how MSME loans are extending helping hands to the business-minded people. Today, nearly 70% of employment in the nation comes from these small and medium enterprises. Thus, MSME loans support businesses as well as economy to grow.
MSME loans being counted as unsecured loans require a few documents to avail the loan but the process is not long if the grounds are clear. Thus, MSME loans are considered the best for a small business owner.
By – Nikhil Shendurnikar (Director, Debt Counsellor)