What are the Benefits of an MSME Loan?

by Hakeem Perkins
July 29, 2022
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A small business will inevitably need financial assistance at some point. When Micro, Small, and Medium Enterprises (MSMEs) seek economic growth, they need financial assistance to help them achieve the growth they seek. In some cases, these funds are required to purchase necessary equipment, upgrade the infrastructure, or meet the operating costs. Depending on the owner’s priorities, these funds may come from various sources. A wide array of companies from various fields can seek funding through various means of borrowing, which is very convenient for them. But, when it comes to addressing the financial needs of Indian MSMEs via loans, an MSME loan is the most popular route taken to address those needs. Certain factors have led to MSME loans becoming popular among small business owners in India, so let us look at them.

What is an MSME loan?

MSME loans are business loans that are given to micro, small, and medium-sized businesses to start businesses, expand businesses, or cover other expenses. MSME loans are unsecured by nature, so getting them is usually quick and easy. This type of loan has specific eligibility requirements, so make sure you meet them. According to the Government of India and RBI, MSME loans are “loans to businesses for financing, infrastructure, and other stuff.”.

These loans are available through government schemes like the Micro and Small Enterprise Credit Guarantee Fund (CGTMSE). The Ministry of MSME, the Government of India, and the Small and Medium Enterprises Development Bank of India set up a scheme to facilitate credit to MSME firms without requiring collateral.

Why Should a Business Take MSME Loan?

A business owner can take MSME loans for many reasons. Here are a few:

As a business expands, it needs more working capital
To assist in managing cash flow
During the purchase of new equipment and machinery or for the upgrading of existing machinery
To purchase raw materials
Purchase of vehicles and other fixed assets
For hiring and training staff
To pay salaries and wages
To create a raw material inventory
To renovate the business premises, etc.

Main benefits of an MSME loan

There are many benefits of MSME loans. Among them are:

Accessibility:

The timing is critical, especially when a business’s needs are urgent and some unforeseen event occurs. Having a lack of funds can make running a business difficult. MSME business loans can help. There are many advantages to taking MSME loans, such as ease of access and convenience. Further, little documentation is required, and the loan is funded within a short period.

Complete control:

Small business owners have to take care of their finances while running their businesses, but getting financing isn’t easy. Although there are other financing methods, such as angel investors and venture capitalists, these sources attempt to control part of the business in return for their loans. Owners of small businesses may be unwilling to relinquish control over their businesses. For these reasons, they should consider taking out an MSME loan. An MSME loan is an excellent option for business owners who wish to eliminate the liquidation of control.

Reducing interest rates:

A business owner must consider the interest rate when applying for a loan. This factor plays an important role in determining the total cost of the loan and the monthly payment. The monthly installment amount depends upon the principal and the interest rate. For this reason, taking out a loan at a lower interest rate is important to ensure affordable EMIs. MSME loans generally offer low-interest rates and are great for small business owners.

No strings attached:

No collateral is required. In a small business, assets aren’t as valuable, so they cannot use equipment as collateral. Banks might acquire valuable resources, but it could negatively affect their productivity if something goes wrong.

Short-term commitment:

An MSME loan is usually a short-term loan for a small business. Since there’s no commitment, this arrangement gives the borrower some flexibility. In addition to helping the management manage cash better, it also helps allocate resources effectively.

Flexible repayment terms:

An applicant’s convenience of repayment is a very important factor when deciding whether or not to apply for a loan. Having a reasonable repayment period enables borrowers to manage their financial obligations better and avoid defaulting on them. Consequently, MSME loans come with flexible repayment terms, allowing business owners to plan their finances better.

Eligibility Criteria for MSME Loans

Business owners need to meet the terms and conditions to get MSME loans. Among them:

If you want to apply for an MSME loan, you have to turn over at least ₹90,000 in the last three months.
The business owner will require documents such as Business Registration and Proof of Permanent Address.
Businesses should not come under the category of blocklisted ones.
Income Tax Returns to prove business owners pay their taxes.
Compliance certificates like GST and other registrations are also required to be eligible.
You should provide income and expenditure documents.
Borrowers with good payment histories are more likely to get loans.
A charitable institution, a trust, or an NGO is exempt from MSME loans.

Documents Required to Apply for an MSME Loan

If you want to apply for an MSME loan, here’s what you need:
Your Aadhar card as proof of identity
Rent receipt or ration card as proof of address
If applicable, a business address that’s endorsed by a service contract
It’s easy to submit proof of income by showing a copy of your balance sheet.
Aside from that, applicants should read useful info and website sources to find out what they need to submit.

Conclusion

To sum it up, MSME loans are provided solely to ensure that lack of funding does not impede the growth and expansion of small companies. Lawgicalindia provides an MSME Registration. MSME loan program that assists MSMEs in growing and developing their businesses, which contributes to the country’s economic development.