MSME Loan: Why it is Ideal Choice for Small Business Owners

It is estimated that MSMEs (Micro, Small and Medium Enterprises/companies) are the largest employment providers in India. In fact, MSMEs hold about 40% of total exports and 45% of total manufacturing output of the country. Besides, their overall contribution to the employment industry is around 69%.

But, similar to any other business in the market, even MSMEs require stable funds and investments to grow or expand. When applying for business loans, MSMEs require passing various financial tests to acquire unsecured loans from non-banking finance companies. 

But, since it is quite noticeable that MSMEs growth can directly impact the growth of the Indian economy, many financial institutions, both government and private recognized firms have introduced various schemes that offer MSME loan in India. And that means, the MSMEs do not have to go through stern eligibility criteria required for a normal business loan to qualify for the MSME loan. 

Why is MSME loan an ideal choice for the small business owners? 

Well, when it comes to obtaining a loan, most banks or lenders cross-check minute details to determine the borrower’s worthiness and financial stability to clear the loan down the line. And that means, they only prioritize the business that is risk-free and profitable. 

But as we all know, not every MSME has proper financial stability in the initial days. With MSME loan, they can certainly pass the qualification to obtain the loan with minimum eligibility criteria. Besides, there are various benefits, too, such as:

• Minimum eligibility criteria to qualify for the loan
• Various benefits are provided on certain taxes
• Easy to avail government MSME loans
• Offers similar chances to all types of business
• Lends fund to grow the capital and business needs
• Funds can be used for any types of business requirement 

What does an entrepreneur require to be eligible for MSME loans?

1- An intact business plan: 

This is one of the vital requirements that an entrepreneur requires to become eligible for MSME loan for small businesses. 

2- Business registration:

Even if the borrower has a startup company or a small venture that is operating for a few years, only the business registration will aid in becoming eligible for a business loan or even government schemes. 

3- Statement of profit and loss:

The borrower might also need to submit the profit and loss statement of the business to display how the business is performing before the funds are allocated. 

4- Previous year ITR file:

With the ITR file, the lender will gain the information on your taxes. It will also let the lender know about the borrower’s tax-paying practices. 

5- Certificate from authorized bodies: 

The borrower also needs to submit any type of certificate provided by the authorized body like the GST certification to offer the compliance check of the business. In fact, the lenders quickly agree for the loan approval if the business is a registered entity with authorized bodies.  

6- Permanent address proof:

Similar to a business loan, even MSME loan requires the borrower to submit permanent address proof documents. 

Besides the eligibility criteria mentioned here, your lender or bank may ask for other documents too. 

Benefits of MSME Loan

1- Reduced interest rates:

When it comes to the business environment, the more capital a business has, the better it can perform and take the risks that come along the way. 

The best thing about MSME loan is that it allows the borrower to spend less on the repayment of the loan and more on the business’s needs.  

2- Short-term commitment:

Most small businesses take MSME loans for a short-term. This arrangement offers flexibility to the borrower because he/she doesn’t have to worry about the loan for a long period of time. 

Besides, with a short-term loan, it becomes possible for the small business to manage the hindered cash flow and allocate the remaining resources efficiently. 

3- No strings attached:

MSME loan does not force the business to submit collateral in order to become eligible for the loan. And since most MSMEs are “asset-light,” it certainly becomes hard for them to keep anything as collateral to obtain any type of loan. 

Similarly, MSMEs cannot use their valuable resources to obtain cash because that will lead to a negative impact on productivity. This way, the MSME loan proves to be the ideal provenance for small businesses to obtain capital funds. 

4- Accessibility:

Running a business in Indian economy means sometimes you will have a surplus of funds and other times even a penny can make the difference, all thanks to the seasonal supply and demand. 

With MSME loan, the business gets the opportunity of going through an urgent situation as the disbursing time is meagre. 

Over to you

Well, it is quite evident from the blog that MSME loan is the best way to obtain required capital for the growth of small businesses.