Learn How MSME Loan Can Help Small Business Owners

The micro, small and medium enterprises sector occupies a position of strategic importance in Indian Economy. Not only does it contribute a significant portion to the GDP – approximately 30% of the Gross Domestic Product and 40% of total exports – but they also generate employment opportunities to around 110 million individuals in the country.

Unfortunately, despite its overwhelming presence, this industry still faces a major challenge while securing credit for its everyday operations. Consequently, to alleviate the hassles faced by enterprises in this sector, the Government of India, as well as private financial institutions, started offering low-cost cost credit solutions like MSME loans.

These credits can facilitate small business owners in several ways, including – 

Purchase or lease machinery – 

One of the main factors that play a huge role in the success of any manufacturing business is its equipment, or technology, depending on the sector it belongs to. A company with the latest equipment will be able to produce high-quality goods faster, thereby bringing in more profits. Additionally, with improved production, the firm can reach out to more clients, which will help in expanding operations. Thus, companies can opt for a business loan to upgrade or procure new equipment, helping them stay ahead of their competition.

Hire a skilled workforce –

Besides the latest machinery, a skilled workforce is also crucial to the success of a business. However, hiring trained employees can be quite expensive since companies will have to pay more salary to retain them. Business owners can avail funding through credit solutions like MSME loans to meet the expenses required to recruit skilled labour.

Upgrade inventory – 

Businesses must also re-stock their inventory systematically to ensure timely production of finished goods so that customers’ demands can be met successfully. If a company does not maintain its inventory properly, then they won’t be prepared to fulfil customer orders which may result in loss of important clients. Therefore, organisations can consider applying for MSME loans to avail necessary funding and upgrade inventory.

Improve cash flow – 

Working capital is an essential part of a business since it enables a company to meet its short-term expenses such as rent, payment of salaries, procurement of raw materials etc. Hence, businesses always need to maintain a steady supply of cash flow. During off-seasons, firms can avail MSME loans to improve working capital. Business owners can calculate how much working capital does a business need and apply for the necessary amount as a credit. 

MSME loans are offered by the government as well as private financial institutions. Some of the schemes under which Government of India provides MSME loans include – 

  • Credit guarantee scheme
  • MSME business loans for start-ups
  • Pradhan Mantri Mudra Yojana 
  • Stand up India 
  • SIDBI Make in India Soft Loan Fund for MSMEs (SMILE)

However, availing loans under these schemes require meeting strict eligibility criteria, and can be a time-consuming procedure. On the other hand, one can quickly get approved for business loans from financial institutions and NBFCs in the private sector.

Moreover, they also offer several features and benefits such as pre-approved offers which reduce hassles and accelerate the loan application procedure. Such offers can be availed on multiple financial products like business loans, personal loans, credit cards and the like. You can check your pre-approved offers by entering your name and contact information.

Besides pre-approved offers, one can also avail other benefits such as flexi-loan when they opt for a business credit.  This facility allows borrowers to withdraw only the required amount from the available limit and pay only the interest component as EMI. Thus, a flexi-loan can be the ideal way to meet your working capital needs.

Eligibility criteria for MSME loans

Business owners and entrepreneurs can easily qualify for a credit if they meet the following MSME loan eligibility parameters – 

  • Applicants must own a business with a vintage of at least three years.
  • Borrowers should be between 25 and 55 years of age.
  • They should maintain a high credit score of 750 and above and have a clean repayment history.
  • Applicants should have filed an income tax return for the previous year.

Furthermore, following entities and individuals can apply for a business loan – 

  • Self-employed professionals like doctors, company secretaries, chartered accountants, etc.
  • Self-employed non-professionals proprietors, traders, manufacturers, etc.
  • Entities like partnership, private limited companies, limited liability partnership.

Business owners and entrepreneurs can also opt for different types of MSME loans as per their requirement. For instance, Individuals who wish to improve the day to day cash flow of their business can apply for a working capital loan. Contrarily, those who want to purchase or upgrade machinery or technology can opt for a machinery loan.

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