Despite serving as the backbone of the nation for a long, the MSME sector faces a recurring issue regarding the availability of easy credit at the right time. Lack of adequate resources is the reason why around 90% of small businesses fail and declare bankruptcy, according to recent data.
As a result, with an aim to boost growth in this sector, the Government of India has released several MSME loan schemes under which entrepreneurs and small business owners can avail of funding at competitive interest rates and terms. Apart from government-backed loan programs, several private financial institutions and NBFCs in the country are also extending loans to MSME at favorable terms of service.
However, before opting for such a loan, one of the first things that one should consider is MSME loan interest rate as it determines the overall cost of the loan. Besides that, there are other critical factors as well that one should consider before applying for the advance. Some of them are listed below.
Before applying for an MSME loan, a business owner should take into consideration the financing needs of his or her venture. It will enable them to opt for a suitable loan option as per their requirements. For instance, entrepreneurs can opt for a working capital loan to ensure smooth operation during the initial period.
However, before opting for this loan, one should first determine how much working capital his/her business would need.
On the other hand, a business that is looking to purchase and install new machinery during business expansion can opt for a machinery loan instead. It will enable them to upgrade or purchase machinery and such other fixed assets, thereby resulting in overall production improvement.
Compare loan options
After assessing the requirements of the business, one should look for a suitable loan provider. They can either opt for a loan under a government scheme such as Mudra loans, Stand-up India, Start-up India schemes, or go for private financial institutions like Bajaj Finserv offering affordable MSME loan interest rates.
The NBFC also provides pre-approved offers to borrowers on financial products like MSME loans, business loans, personal loans, credit cards, etc. These offers make for a more hassle-free loan application procedure while also speeding up the process. One can quickly check his/her pre-approved offer by providing name and contact information.
Besides pre-approved offers and affordable MSME loan interest rates, borrowers should consider other features too such as the following –
- Flexi Loan facility – This facility allows borrowers to meet their recurring funding needs by enabling them to borrow only what they require at a given time. Furthermore, with this facility, borrowers need to pay only interest only on the amount used.
- Online loan management – Borrowers can also manage their loan accounts efficiently from the comforts of their own home.
Borrowers also need to go through the eligibility criteria while choosing a business loan to ensure they meet all the parameters. It will enable them to quickly get approved for a loan amount. Some of the basic criteria that they should meet are –
- Age should be within 25 – 55 years.
- Minimum business vintage of three years.
- Borrowers should be a residential citizen of India.
These parameters may vary based on the lending institution one is opting the credit from. Besides, government loan schemes may also lay additional requirements other than these. Hence, applicants must verify from the lending institution before applying.
Borrowers are also required to submit specific documents while apply for business loan. Therefore, one should go through the list of required documents and keep them handy when applying. Given below is the document checklist for business loan application –
- Age and identity proof which includes Aadhaar card, Voter ID card, PAN, driver’s license, etc.
- Financial documents such as Income Tax Returns, Profit and loss and balance sheet
- Business ownership proof such as registration certificate, Partnership agreement, PAN, Income Tax returns, Goods and Services Tax or any other document issued in the concern’s name.
Once through with these preparations, a business owner can proceed to apply for a suitable financing option to fund his/her venture’s growth. MSME loans thus enable small and medium businesses to meet all their funding requirements, which will allow them to further develop and expand their operations with ease.
Hamza Sheraz is an experienced Financial Consultant and Tech Reviewer who has 6+ years of experience in the field of finance, business, and technology. He is very passionate to write about Finance, Business, Technology, Gadgets, Shopping, Fashion, Lifestyle, etc.