Introduction:
Getting loans for business expansion in India is indeed a tough nut to crack. Collateral pledging, high interest rates and short term tenures stand are complicated hurdles when looking for practical loan options for the growth of a business. However, with options such as MSME loans, you might be able to get the funding you need with ease.
MSME loans are unsecured loans with interests as low as 7.65% provided by certain financial institutions such as NBFCs under the condition that your business falls under one of these three categories; micro, small or medium. Each of this is classified as a business having an investment threshold of less than 1 Cr, 10 Cr and 20 Cr respectively. These businesses form the foundation of India’s economy contributing to over 29% of the nation’s GDP.
In this article, we will shed light on how MSME loans could act as a tide changing catalyst for the growth of your business in the coming fiscal year.
Why should you get an MSME loan?
Are you someone trying to expand your business in the coming year?
With quick disbursals, interest rates averaging under just 10% p.a and a tenure that is flexible from 12 months to 15 years, an MSME loan can be considered as the go-to option for businesses trying to make the statement by the end of the next fiscal year. Here are several aspects that stand out if you are planning to choose an MSME loan for the expansion of your business.
A collateral-free operation
Unlike traditional methods that necessitate a collateral or security in exchange for a loan, MSME loans in most cases, enable businesses to get access to funding without requiring any type of collateral. In terms of RBI guidelines, banks are required to refrain from accepting collateral security for loans up to 10 lakhs provided to MSMEs.
Budget-friendly interest rates
The more money you have, the better you are at converting risks into opportunities. With comparatively low interest rates in MSME loans that take up only a small fraction of the allotted fund, companies are left with a reasonable chunk of money to spend on company needs.
Tax benefits
As loan repayments act as a company expense, tax advantages are provided on interest payments, enabling small businesses to priorities their development without having to worry about tax too much.
Flexibility
Flexibility in the amount, tenure and interest rates are the major aspects that makes MSMEs stand out from other competitive sources. It allows smaller businesses from getting constrained by borrowing large amounts with comparatively high and non-negotiable interest rates.
Ease of processes
With seemingly quick approvals and disbursals of funds combined with paperless application processes, MSEMs acts as a quick source to rely on during financial emergencies. Approval of an MSME loan can happen in less than 3 days and is electronically transferred to your bank account
When should you consider getting an MSME Business Loan?
When owning a business, there arises several circumstances that bring about the requirement for immediate financial backups. Planning ahead for the sustainable growth of your company requires you to get hold of working capital that might seem out of reach during a crisis. Listed below are several instances where an MSEM loan can come in handy for your budding business in the coming fiscal year.
Upgradation of technology
MSEM loans facilitate funding for the adoption of advanced technology that results in enhanced productivity in the business, leading to better efficiency and competency in the landscape. It also aids in the growth of a company's working capital that allows them to upgrade their technological infrastructure such as machinery and software.
Need for working capital
With short disbursal periods, MSEM loans help in countering a sudden need for working capital for needs such as utility bills and salaries. They also help businesses tackle unforeseen cash flow constraints without a hassle.
Business expansion
There is no better feeling than seeing your business gain the thrust that it lacks. However, a lot of the budding businesses have remained stagnant because of the unavailability of capital for growth initiatives such as opening in new locations or entering new markets. Such expansions require upfront investment and an MSEM provides exactly that with ease.
Things to consider- Some disadvantages of MSME loans
Nothing in this world is all sunshine and rainbows. Even with tremendous benefits, MSME loans come with several disadvantages that you need to consider before opting one.
Tedious procedure while applying for loans
An MSME loan has a very high probability for approval, however, the process behind most of them is tiring. The need for a large number of documents makes it a tiring process. Documents such as income tax returns, profit and loss statements, bank account details, bills of receipt and payment, and several other papers are asked to prove the credibility of the lender.
Partial sanction of funds
In many cases of MSEM loans, only around 50-60 percent of the total amount is sanctioned, forcing businesses to opt for other options such as NBFCs.
Piling of interest
Even though interest rates for MSME loans are comparatively low, the interest accumulates rapidly and takes away a significant amount of money when paid. This destroys the whole purpose of opting a low interest providing loan.
Conclusion
The MSME sector in India forms around 30% of the nation's GDP. Moreover, it contributes about 40% to the total exports of India and provides more than 110 million job opportunities in the country. With MSME loans, financial assistance for these businesses has now become easier than ever. Easy access, flexible plans and an absence of collateral pledging in MSME lets you focus on the things that truly matter.
If you’re planning to expand your business in the coming fiscal year and the only thing stopping you are funds, MSME loans are the way to go. However, if the above mentioned cons are concerning you, head over to TapCapital and avail hassle free fundings for your business with quick processes at a slightly higher interest rate.
FAQs On MSME Loan Scheme:
1. Do all banks offer MSME loans?
Under certain RBI guidelines, domestic scheduled commercial banks and foreign banks with more than 20 branches will allocate 7.5% of their Adjusted Net Bank Credit (ANBC) to the microenterprises sector. Apart from banks, other popular NBFCs, SFMG India credit business loan provides MSME loans in India.
2. How much can I avail without providing any collateral?
As per RBI guidelines, banks have been mandated to pay up to 10 lakhs without accepting any collateral. However, this amount is subject to increase to up to 25 lakhs with good financial position and track record of the MSME units.
3. What are MSME loan interest rate?
Interest rates for MSME loans are solely dependent on various factors such as credit scores and the institutions that provide them. However, it can be as low as 7.8%, but something around 10% can be seen as an average.
4. How do I check my business' CIBIL score?
You can visit CIBIL's official website and request for your credit report or visit various other trusted sources to do so.