MSME Loan: Factors to consider before applying

On the recent event of Union Budget 2021, MSME zone offered a financial boost through loans and advances proposed by the GOI.

MSME means Micro, Small, and Medium Enterprises which falls under a particular limit of investment or turn over. This includes manufacturing and service industries. As per the latest MSME criteria revision Micro, Small and Medium enterprises are categorized as given below.

MSME registration is also made simple with Udyog Aadhar. All that you need is an Aadhar card and basic details of the business-like Type of the industry, Location details etc.,

India is the second country with the largest small and medium industries base after China. With such a large category, the Indian government has facilitated a lot of funding features available for the sector through MSME loans.

MSME Loans

These loans are funding support offered to the MSME registered companies to meet the fund requirements for managing business cash flow, to buy equipment, to procure raw materials for business, for paying salaries, maintaining inventory etc.

There are some basic requirements to be fulfilled before applying. Those are

? Registration document (For respective company type)

? The business should be registered in India.

? Supporting documents like Identity proof, Address proof, Financial Proof-like 6-month bank statement or ITR Filed duly verified.

? Business Documents like the business plan in case of a new business or business activity proof in case of existing business.

? Company Types: Private or Public limited, Limited Liability Partnership, Partnership Firm, Solo Proprietorship, Co-operative or a Hindu United Family business.

? Good Credit Rating.

? Indian Citizen with no criminal records.

Important Factors of consideration

Factors that are ought to be considered before availing loan.

1. Lender

MSME loans are provided by various banks and financial institutions both government and private-owned. Recently, all Non-Banking Financial Institutions can grant a loan for MSME’s against dues via TReDS Platform. Look for types of lender- Government bank /Government aided banks/ Commercial banks/ Other Financial Institutions.

2. Interest Rate:

As a part of financial sector liberation, interest rates and lending policies are decided by their own. So, the rate of interest varies from bank to bank and other lending agencies. Comparing the rates thoroughly is another important factor to be considered before availing loan.

3. Types of MSME Loans

Consider the kind of loan that would be suitable for your business type for repayment. The type includes

? Cash Credit Loan

? Short period- Unsecured loans

? Short period- Secured loan

? Long period-Unsecured loans

? Long Term- Secured loans

? Asset-backed Loans (With collateral)

? Non-Asset backed or Guarantee free loans

? Line of Credit/Overdraft Facility

? Bill Discounting/ Invoice Discounting

4. Processing Charge

Loan processing charges vary from nil to a certain percentage on the loan. Prior knowledge about this factor is very much helpful in decision making.

5. Does your business fall under the priority sector?

Look whether your business falls under the category of priority sector as per Reserve Bank of India. Priority sector impacts large number of people, the weaker and the employee intensive section like agriculture. Detailed guideline of about the priority sector is available in the official RBI Website. Priority sector loan have some extra benefits.

6. Schemes

Available is a bunch of schemes for MSME offering a great range of concessions and targeted enabling of easy and quick loans. Some important schemes include

? Mudra Yojana under PMMY offering 3 categories of loan

o SHISHU till ? 50,000 for newly started business and Start-ups

o KISHOR till ? 5,00,000 for business expansion

o TARUN till ? 10,00,000 for established companies

? Credit Guarantee Funds Trust for Micro and Small Enterprises scheme (CGTMSE)

o Non-Collateral backed loans

o For new and existing businesses maximum Credit Cap up to ? 2 Crores

o Business rehabilitation assistance with max credit cap of ?2 Crore

? Prime Minister Employee Generation Programme scheme (PMEGP)

o Aim to increase the employment rate of the youngsters

o Grants 15%-35% of the project amount as subsidy

? SIDBI Make In India Loan For Enterprises (SMILE)

o To make MSME’s part of Make in India campaign

o Minimum of ?10 Lakh loan grant

o Repayment can be done in 10 years + 36 months

Besides these, there are many schemes available for Women entrepreneurs, Location-based schemes, and sector-based schemes. Deep research on the various schemes would be very much helpful to get concessions and subsidies which your company is applicable for.

Concluding

MSME loans can be a great source of funding for new and established companies. The key benefits include low-interest rates, Non-collateral backed, Low processing charges, Easy & quick documentation, Quick loan approval and disbursal, flexible loan repayments and so on.