FOR EXISTING POLICY
FOR NEW POLICY
MSME loans offer financial support to empower small and medium-sized enterprises. There are multiple benefits of MSME loans such as flexible repayment terms, favourable interest rates, etc.
MSMEs (Micro, Small, and Medium Enterprises), are a significant segment that contributes to India's economy. MSME contributes approximately 40% of a country's GDP (Gross domestic product). It is indeed the backbone of the country. However, MSME business requires financial aid and support at various stages.
The financial support can be to upgrade their infrastructure or meet operating expenses. Hence, the need for the MSME loans. Here in this blog, we will find an answer to ‘What is MSME loan?’ and learn the advantages of small business loans.
What is an MSME Business Loan?
An MSME loan is offered to small, micro and medium-sized businesses or enterprises to support their business needs. The business needs can be establishing a firm, meeting other expenses, buying new machinery, etc. The Government of India defines these kinds of loans as unsecured, and accessing them is easy. However, entities need to meet the eligibility criteria to avail of the benefits of MSME loan.
Financial institutions of India offered these loans under various schemes such as Credit Guarantee Scheme, Startup India, etc. The interest rate for MSME loans depends on the business requirements and profile of the applicant. Further, the repayment tenure for a Digital MSME loan is 12 months to 5 years, depending on the business requirements.
Purpose of MSME Loan
The purposes for acquiring MSME business loans are listed below:
- To start a new venture or business or expand the existing business.
- To buy equipment, machinery, electrical appliances, spare parts, etc.
- For acquiring commercial properties or for construction of office space.
- To meet the business's operational requirements such as paying salaries, advertising costs, etc.
- To procure capital to launch a new product.
- As additional finance to conduct business activities.
Significant Benefits of MSME Loan
MSME loans are helping businesses to achieve their business goals. Some of the prominent benefits of MSME loans are:
Capital Requirement
Running any business profitably is a challenging task. The business requires funds and capital that need to be dispersed urgently. And if the business does not have capital, its operations can be affected.
An MSME loan is designed to help businesses to carry out their regular business activities without worrying about funds. Compared to any other loan, availing MSME loan is an easy process to fulfil the capital requirements of a business. The documentation is minimal, and processing time is fast.
Low-Interest Rates
One of the reasons businesses hesitate to take out loans is the high-interest amount. Unlike any other loans, MSME loans are different with their affordable and competitive interest rates. The affordable interest rate is because this kind of loan is considered less risky compared to other loans. Usually, the interest rate of these loans ranges between 10 to 15 per cent.
Complete Business Control
Another challenge most business owners face in India is to address business financial requirements. And when the business is not doing well, business owners go for fundraising, where they have to give up the company stake for cash flow. This involves a third party in a business, which means you can not be the sole owner of a business now.
But with MSME loans, instead of reaching out to venture capitalists, businesses can reach out to financial institutions for capital without losing business control.
No Collateral Required
In a traditional loan, a business needs to present the collateral as support to acquiring a loan. But that is not the case with unsecured MSME loans. These loans are designed to help medium or small-size businesses, and businesses need not pledge assets to acquire a loan.
That is why MSME loans are popular since businesses can easily acquire them to run their business without any collateral.
Flexible Repayment Options
Another significant benefit of MSME loans is flexible repayment options. It allows businesses and entities to manage their cash flow effectively. Such loans are usually required by businesses to meet their short-term capital requirements.
However, it is also for businesses who look for more significant amounts for long loan tenures with the best interest rate. Not just this, some NBFC (Non-Banking Financial Corporation) offers curated or customised loans to businesses as per their requirements.
Tax* Benefits
Individuals or entities need to pay their taxes on time. With MSME loans, entities or businesses get another benefit to reduce their tax liabilities. By showing the MSME loan status while filing income tax returns, entities can reduce the taxable income of businesses, which eventually leads to lower tax liabilities.
How To Get An MSME Loan for Business?
MSME loans are the financial aid given to MSME businesses or entities to expand their business. There are multiple ways to get an MSME loan in India, which are:
- Banks - The first and easiest way to acquire MSME loans is through banks. It can be obtained easily from any government or private bank in India. However, you must present proper documentation to acquire a loan on time.
- Government's Credit Schemes - The government has launched several schemes to help MSMEs. These schemes include MSME loans in 59 minutes, Pradhan Mantri Mudra Yojana, etc. To apply for funds via these initiatives, applicants must first reach the designated financial institutions or central nodal organisations designated by the government to oversee these programs.
- Non-banking Financial Corporations (NBFC) - These institutions have services similar to banks but do not hold any banking licence. However, most NBFC institutions offered MSME loans to entities without any collateral. Even if your credit is not perfect and you do not have much business experience, you should have no trouble getting an MSME loan from an NBFC.
Conclusion
In this blog, we have answered what is MSME and how it benefits the business. MSME loan is designed to provide financial aid to businesses. The primary goal of MSME loans is to remove the financial barrier that prevents these companies from growing and expanding.
