What Is a MSME/SME Loan?
MSME/SME (Micro, Small, Medium, Enterprises) loans are the credit facilities. It is a financial-aid proffered to small sector businesses for its long-term, working capital, growth or expansion purposes.
Loans are immensely helpful for MSMEs to maximize their full potential through adequate funding, especially for women-run businesses which otherwise makes it difficult for them to arrange finances.
MSME/SME Role in Indian Economy:
MSME/SME is known for its creation of largest employment in India. It generates 69% employment besides holding 45% share in the manufacturing industry and 40% in the country’s total export.
A significant number of employment and other economic output of the MSME is crucial for the success of Indian economy. However, it requires sufficient funds and investment to sustain the growth of MSME.
Indian government, banks and renowned financial institutes like non-banking finance companies (NBFC) introduced various schemes and policies that furnish loans to the MSME participants.
Getting MSME loans is not a cakewalk. It involves a number of tests before you avail the loans or working capital from the banks or NMFCs. The best part is the qualifications for acquiring loans are less than what normally accepted.
The business loans are offered if it prospected as a risk-free model, though such provisions do not require in MSME/SME loans. Small business owners pass minimum eligibility criteria for loans and many other value-added services.
Why taking MSME loans is a good decision for small Business Owners?
- Moderate eligibility criteria to qualify for the loan
- Exemptions on the certain taxes
- Government based MSME loans are available
- Equal opportunity to all kind of business
- Funding for fulfilling all types of business requirements
MSME Loan: Key Benefits
MSME or SME loans serve specific purposes that meet the demands for small business that regular loans are incapable of facilitating. It is designed particularly to empower small and medium businesses.
- Less burden of documentation
Organizing the stacks of documents is perhaps the most difficult challenge while getting loans. Regular business loans require property deeds, financial statements, details of owners, partners or shareholders.
On the other hand, these things are not compulsory for granting MSME loans. All you need here are the easily-available documents like GST details, bank statements, and income tax filings. Unlike other businesses, small enterprises do not hassle from pillar to post to get MSME loans.
SME loans are often unsecured for creditors. It means that they do not ask for any guarantee. As an MSME owner, you do not have to submit property papers or mortgage business equipment. Basic proof of business documents is more than enough to become eligible for funds.
- Lower interest rates
Since SME business loans are specifically originated to assist small businesses, the interest rates are in order to match with their affordability. Interest rates are crafted after considering the capacity of business to repay the liabilities, hence it ensures the fair deal for both parties.
- Tenure Flexibility
The tenure of the loans are decided as per the convenience of MSME to make the repayment. For instance, MSME provides short-term with the duration ranging from one month to 36 months. A flexibility is given for repayment where the banks offer weekly, monthly or bi-monthly installment options.
- No Prepayment Charges
Most MSME business loans also prevent prepayment charges for early loan closure. Therefore, if you can repay your debt in full before the expiry of term, you will save on payment of interest without paying any extra charges for early closure.
Government Schemes offering Loans to MSME & Indian Start-ups
- Pradhan Mantri Mudra Yojana (PMMY)
- Credit Guarantee Scheme (CGS)
- MSME Business Loans For Startups In 59 Minutes
- Bank Credit Facilitation Scheme
- 42 (End to End Energy Efficiency)
- Coir Udyami Yojana
- Credit Linked Capital Subsidy for Technology Upgrades
- Sustainable Finance Scheme
- SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)
How to become qualified to avail MSME Loans?
- Business plan: A constructive business plan is the essential precondition to become eligible for any MSME loan.
- A registered entity: A business registration is must for any business, may it be start-up, small enterprise or regardless of its year of existence. It is not possible to avail MSME loan if there is no such registration.
- A statement of profit and loss: In case the business is in a running state, a profit and loss statement is asked as evidence. It proves that you have been actively operating past year so the loan can be sanctioned.
- Previous year’s ITR filed: ITR documents represent your taxes and the money lenders review it to verify that you have cleared from any debts.
- A good credit record: It shows your recorded history of previous loans. When they find that you have a consistent repayment history, you are qualified for their loan quite easily.
- Certificate from all the authorized entities: GST and other registrations for the business gives authenticity and credibility to your business. Lenders don’t hesitate while allotting a business loan to an entity that has registered with these legal bodies.
- Permanent address proof: Address proof is extremely mandatory to borrow any form of MSME loan.
- Signature of co-borrower (if any): In case you have a co-borrower, you need to include the signature of your co-borrower in loan documents.
- Collateral documents (if any): If you intend to provide any collateral as an exchange for your loan, submit all the relevant documents.
- Bank Statement: To inspect your earnings and spending, the lender asks for the bank’s statement.
- The business must establish a realistic projection.
- The business must have determined end use of funds.
Granting loans are some of the many measures undertaken by Indian government to promote small scale industries and start-ups in the country. India occupies 77th rank in 2018 in the World Bank Matrix in ease to doing business.
The government of Indian has been hustling to boost entrepreneurial culture and raise the bars of international startups all over the world. Schemes such as Startup India & Mudra Yojana have inspired a large number of MSMEs to thrive and capitalize the opportunities resulting from these schemes.
The government’s dedication to offer business loans to startups and MSMEs even at the ground level will surely motivate aspiring entrepreneurs and small and medium business owners to nurture and flourish their enterprises.
Frequently Asked Questions:
- Which are the different types of MSME loans?
One size can not fit all. MSME may have different funding requirements whether its manufacturing or service-based business. That is why there are MSME loans having several types and diverse specifications.
Types of MSME loans:
From bank guarantees and invoice discounting, the government supported Pradhan Mantri MUDRA Yojana. Secured loan alternatives like asset-centric loans such as gold loans, numerous such options are available. Being an MSME, you are allowed to choose one that suits your circumstances.
- What are the drawbacks of SME loans?
There are few disadvantages for borrowing MSME loans. Although flexibility in terms of collateral and repayment is available, opting an unsecured loan against secured loan means higher rates of interest. A default on repayment of loan imposes penalties. This is why you are supposed to assess your financial standing before applying for an MSME business loan.
- Is there any substitute to SME loans?
A gold loan is also considered as a better alternative for SME loans. If you are at the initial stage of business, you may not even have the minimum documents required for MSME loan. Gold loans can be drawn by anyone owning gold assets. They also come up with flexible tenure, minimum document, with only KYC is mandatory. The loan-to-value amount is usually higher, which can easily be determined using a gold loan calculator.
Rupeek grants instant gold loans to small companies to cover their business requirements. In contrast to MSME business loans, businesses who don’t even have any documents can also take gold loans. All it takes is KYC details and the exact gold amount accepted online, or at your doorstep while you lay back with comfort in your home. Rupeek’s MSME gold loans give comfort and convenience to streamline the process of borrowing and lending.
This press release was published on Supremearticle.com
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