MSMEs are a very important part of the economy of India. The MSMEs contribute to over 40% of India’s GDP, and hence many banks and NBFCs provide loans to these MSMEs. Due to continuous innovations and increasing competition globally, MSMEs need additional funds to maintain a positive cash flow and manage their overhead costs. This is where a MSME loan like IIFL business loan comes in handy. The MSME loan interest rates are usually lower than other types of loans so it is a great choice for small and medium businesses.
What is a MSME Loan?
It is a type of business loan that is given to small, medium and micro enterprises for expanding business, meeting business budget and establishing a business. MSME loans do need collateral and getting them is an easy and hassle-free process. However, you have to fulfil some basic eligibility criteria to get this loan. The RBI and the Indian government have defined the MSME loans as “loans for business enterprises for support in terms of finance, infrastructure, and another improvement in your business.”
Advantages of an MSME Business Loan
There are a lot of advantages to taking MSME business loans by a small business owner. Some of them are:
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Collateral Free
One of the main advantages of MSME business loans is the fact that they are collateral-free. It is granted based on project feasibility, profile of the directors and the company’s performance. This helps a lot of entrepreneurs who are having difficulty getting finance but don’t want to risk their property for a loan.
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Accessibility
MSME loans are accessible very easily to every small business owner now. You do not have to worry about submitting a lot of documents and it is a completely digital process. This way to apply and get approval is easy and is a boon for young entrepreneurs.
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Flexible
There are MSME loans for shorter tenures also to manage business expenses. These MSME loans are specifically designed to keep the tenures short. This way, you do not have to worry about a long debt cycle and to handle the cash flow challenges efficiently and quickly.
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Lower Rate of Interest
MSME business loans tend to have a lower interest rate than other loans. You should also consider other costs like processing fees, prepayment and late fee charges while taking a loan along with the MSME loan interest rate.
5 Useful MSME Business Loan Tips
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Check your Eligibility for Loan
Make sure to know the MSME loan eligibility criteria before you apply for the loan. You can find this out by visiting the individual websites of the MSME loan providers. There are various third-party websites that have the option of comparing various loan options that you are considering. After you apply for the loan, the financial institution will check your credit profile and CIBIL score. It is not a good sign to the lenders to have a lot of inquiries about your credit profile check in a short period of time. It is a caution sign for the financial institutions and this can impact your credit score.
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Check the Needed Documentation
Other than the eligibility criteria, it is equally necessary to check the documents required with the shortlisted financial institutions. Although the documents required has drastically decreased in the last few years, there are still some important papers that need to be submitted by you.
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Understand the Loan Purpose
The first step before applying for the MSME loan is to determine the purpose of the loan. This will help you in getting a better understanding of the purpose of the loan. Most financial institutions give loans to MSMEs to meet their daily business expenses and for business expansion. However, you as a business owner need to be clear about the objective right from the beginning.
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Minimise the Loan Requirement
The best strategy to repay the loan in an easier and fast way is to limit the loan requirement. It is human nature to take more funds than necessary while taking the loan but it is in your best interest to not do so. You are expected to repay the entire loan amount along with the interest in a short time span. Hence, it is important that you only take the loan amount that is needed.
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Make a Repayment Plan
You should have a plan for repaying the loan even before you take a loan. Every MSME loan comes with a liability of EMI repayment. You have to account for your current business costs and choose a loan that you can repay comfortably. You can choose the tenure that suits you the best. Never default or delay on the repayment of your loans as it can negatively affect your credit scores.
The MSME sector is known to be the backbone of the growth of the Indian economy. These businesses contribute significantly to the development and growth of the country through their innovation. MSME loans are an excellent way to help small businesses owners fund their business expenses and expand their business. By doing proper research in selecting the best lender and loan scheme, you can avoid unnecessary delays and greatly increase your loan approval chances.
