The MSME sector in India is one of the most critical contributors and comprises more than 75 million micro, small, and medium enterprises. Singlehandedly, this sector employs a large chunk of population in both rural and urban regions.
- MSMEs account for 95% of industrial units in India and employ more than 110 million individuals.
So, to promote the MSME sector in India, the Government of India has launched several credit schemes for small and medium businesses. Some of them include Standup India, Pradhan Mantri Mudra Yojana (PMMY), Sustainable Finance Scheme, etc. Nonetheless, these loan schemes accompany stringent eligibility criteria and requirements.
- According to a recent report, only 16% of MSMEs can secure a formal credit.
- Around 80% of such companies are underfinanced or tend to resort to informal funding sources.
However, as an alternative, a business can avail of an MSME loan from a leading financial institution at much simpler eligibility and terms of service.
Entrepreneurs must understand that features and associated benefits of these advances are their USPs and make them an ideal financing option for businesses.
Features and associated benefits
These are the most prominent features and benefits of MSME loans –
- A high loan value
Some leading NBFCs provide a high loan value to applicants when providing this customised funding. It allows MSMEs to account for their financial requirements more quickly and enable them to streamline their business operations. This directly makes it an efficient financing solution for MSMEs.
- Quick approval and disbursal process
Most lenders now allow their customers to apply for a business loan online. This, in turn, simplifies the process of documentation and verification to a great extent. As a result, lenders take a short time to process and approve loan applications.
This compact process further helps to disburse the loan to the applicant’s loan account at the earliest. Some NBFCs disburse sanctioned amounts within 24 hours.
- Flexible repayment
Financial institutions like Bajaj Finserv offer flexible repayment tenures to their customers. It allows them to manage and repay their debt better, and in turn, facilitate timely payment.
The lending institution also provides customers with pre-approved offers which are designed to simplify the process of availing financial assistance. Typically, such offers can be availed on financial products like personal loans and business loans. You can check your pre-approved offer online by just entering your name and contact information.
- Nominal interest
Usually, MSME loans can be availed at an attractive rate of interest as the primary objective of such loans is to help small and medium businesses to meet their financial requirements. Nonetheless, individuals can use a business loan EMI calculator to understand how loan EMIs will impact their repayment ability.
Suppose JMT Ltd. availed a business loan of Rs.6 lakh at 18% for 5 years. The loan EMI calculator uses the formula –
E = P x r x (1 + r) ^ n / [(1 + r) ^ n – 1]
So, by just entering details like – principal value, rate of interest, and tenure, they can determine the EMIs quickly.
For instance, as per the formula –
E = 6 lakh x 18 x (1 + 18) ^ 60 / [(1 + 18) ^ 60 – 1]
= Rs.9,000
Nevertheless, individuals should also find out what is MSME loan’s additional charge to streamline payment accordingly.
Eligibility criteria
Applicants who meet these criteria are deemed eligible to avail small business finance.
- Resident Indians between the age of 25 years and 55 years.
- Businesses with a vintage of a minimum of 3 years.
- Businesses that have filed ITR at least in the previous year.
- Those with no credit default history and a CIBIL score of at least 750.
However, one must note that individuals may require meeting additional criteria and submit certain documents to back their eligibility for the loan.
Documents required
Applicants are required to submit these documents to initiate the verification process.
- KYC documents.
- Proof of business address and vintage.
- Bank account statement.
As per requirement, individuals may be asked to submit additional documents to process the application.
Application process
Leading financial institutions allow applying for an MSME loan online. The entire process is rather convenient and straightforward.
By following these simple steps, one can apply for this loan quickly –
Step 1 – Go to the lender’s website.
Step 2 – Navigate to ‘MSME Loan’ page.
Step 3 – Click on the ‘Apply Now’ button.
Step 4 – Fill up the application form available online with the required information.
Step 5 – Verify the details and click on the ‘Submit’ button.
Typically, once these steps are completed, and the required documents are submitted, the application process is deemed complete.
Hence, it can be said that the borrower-centric features and terms of services make MSME loans from NBFCs an ideal choice for businesses. Nevertheless, businesses should be aware of how much capital they need before they apply for a loan to use and manage it efficiently.
