The Indian Government has urged small and mid-sized businesses to stop worrying about the funds and unleash their best form to grow the business. The pandemic has not only changed the way we live but has also had a huge impact on our businesses. Several small and mid-sized businesses have faced trouble due to the pandemic. In order to rescue the business, the government has also offered relief to some extent.
But it has not become easier to get access to funds. If you want to ensure that the business survives and achieves the growth you are aiming for, you will need funds and it is easier said than done. However, there are several MSME loan options you may want to consider. If you are finding it hard to get a business loan, there are many alternatives for you to consider.
You can consider procuring loans through government schemes, non-banking financial institutions and banks. There are several NBFCs that offer loans to businesses and become a part of their growth journey.
What is an MSME loan?
An MSME loan is a type of business loan that helps meet your working capital requirements, boosts cash flow and allows you to expand the business, among other things. You will find several loan options with banks and NBFCs without collateral or any requirement of security from borrowers.
Two kinds of loans are offered to MSMEs in the country. Let’s take a look at them.
Pre-approved loan
The pre-approved loan is a loan that has a pre-approved limit to the amount of funds that are disbursed to the MSME. You only have to pay interest on the amount of funds you use and not the entire loan amount that is approved for you. However, this feature is limited to NBFCs who approve loans ranging from Rs. 10,000 to Rs. 10 lakh.
Flexi-business loan
The Flexi-business loan will allow your MSME to pay interest in monthly instalment and pay the principal amount at the end of the tenure. Hence, this will reduce the burden of principal and interest payment each month so you can have more working capital to handle the business activities. You can get a Flexi-business loan even if you have a low credit score and the lender may consider background verification.
Where can MSME loans be used?
The MSME sector is the largest producer and employer of industrial production. It accounts for a large part of industrial output and exports. If you are keen on applying for an MSME loan, here are the different ways you can use the funds.
Inventory management: An important part of every firm’s revenues, the sales volume will be based on the inventory. A large number of organisations who seek an MSME loan aim to use the money to buy merchandise. You can enhance the efficiency of the inventory supply chain through MSME loan funding. With the loan, you will be able to manage the seasonal dips and make the most of the peak season demand.
Invest in plant and machinery: The MSME loan can be used to cover the purchase of new plant and machinery. The machinery does not come cheap and you need funds for it, this is where the loan can make all the difference. NBFCs offer an MSME loan of up to Rs 1 crore to help grow the operations without using the cash your firm owns.
Handle working capital needs: You need funds for the day to day activities and this amount is known as working capital. It is important to manage the working capital of your business on a weekly, monthly and yearly basis. If there is not enough capital, the business could come to a standstill. You can apply for an MSME loan for working capital management and ensure that the payment to suppliers and buyers is made on time.
Debt consolidation: An appealing feature of the loan is the ability to consolidate debt. You can combine the lesser payments into one EMI which will not only relieve the financial burden on the monthly budget but will also assist in matching the debt payment with your invoices. With debt consolidation, you can lower the amount you pay for the loans since you have the opportunity to extend your payment plan.
Marketing activities: You can expand the business reach through marketing activities. When you have a good marketing plan, you will be able to achieve your objectives and grow the business. But you need funds to invest in a marketing plan and to acquire new clients. This is where an MSME loan makes all the difference. It will provide you with the funds you need to launch a marketing campaign and enter a different industry or reach out to prospective clients.
An MSME loan without collateral is a great choice of businesses that are asset-light. It will help satisfy your working capital needs and grow the business. Since the loan is unsecured, it will not require you to provide any asset and you will be able to achieve the financial goals. The loans are available at low-interest rates and they have a long tenure. Most collateral-free loans have a 12-month tenure and can last up to five years, based on the business needs.
The lender will consider your profile, repayment ability, credit score, business viability and financial stability to estimate the loan amount. There is a simple and straightforward application procedure you need to follow. Simply fill out the online application form and submit the necessary documents to get the funds.
Since the eligibility criteria for an MSME loan is basic and there is minimal documentation requirement, you will be able to get an MSME loan approval even if you do not get a business loan. It is one of the most common forms of borrowing today and serves the needs of several small and medium businesses in the country. Choose a reliable and trustworthy NBFC for the purpose of borrowing.