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MSME Loan: Why it is Ideal Choice for Small Business Owners


Why MSME Loan

MSME loans come with a lot of benefits including the subsidy provided by the government of India. The ministry of MSME was founded in 2007 and since then has taken the initiative to provide the utmost support and facilities to all the micro, small and medium enterprises to increase their Income, cash flow and employment resource at an individual level. The ministry has launched more than a dozen schemes till now including the most famous MUDRA, PMEGP, Startup India etc.

There are a lot of tax exemptions for MSMEs and startups including Tax exemption on capital gains and 100% tax exemption for the first 3 years of the startup. Funding support and credit guarantee funds for MSMEs. There is also a fast legal procedure designed that will help the startups to sort out the legal issues at ease and swiftly. A better startup exit process is created so that the entrepreneurs can have the best benefits available.

Purpose of MSMEs

·   Acquiring a piece of land or a factory or a plant or doing construction on that land.

·   For the purchase of machinery and accoutering the plant with lab and testing resources, furniture and other important fittings that are needed for smooth operations.

·   To fulfil the working capital needs such as Goods, raw-materials and stock that is in progress.

·   When waiting to receive payment from one party but need to pay the creditors for continuous supply of the goods/services.

·   For marketing and advertising of the business

·   Expansion of business or to launch a new suite of products.

Apart from the above, money required for any other type of assistance not outlined above but is needed for business functioning.

Eligibility Criteria

·   To qualify for an MSME loan one must have a well-structured business plan and should be able to demonstrate the challenges, strategies, go to market options before applying for a MSME loan.

·   Business Registration: Regardless of a business being a well-established one or a new startup. A business needs to be registered to avail any benefits or subsidy from the schemes provided by the government of India.

·   Profit and loss statement: In case of running businesses, a P and L might be needed to ensure how well the business is doing and to validate the loan details.

·   1-year ITR: Income tax returns of the last 1 year to check whether you have paid all your taxes on time.

·   Credit history: Lenders prefer to check the history of loan repayments made by the borrowers to predict the future possibilities. A good credit history ensures a higher eligibility potential.

·   Adding a Co-Borrower will increase the eligibility of the application.

·   If there is security or collateral provided to get the loan then all the necessary papers are to be submitted to the Bank at the time of application.

·   Bank statement for the last 6-12 months to know and validate the transactions of the borrower’s account.

·   A realistic projection for the business needs to be demonstrated.

Documents Required for an MSME Loan

MSME loans are collateral free in most cases, however, depending on the situation and specific requirements of the loan a collateral might be required. The below documents are required for a security free loan.

·   KYC documents: Aadhar Card or PAN Card, valid Indian Passport or Voter ID Card/driving license, etc.

·   Address proof: Utility bills, Aadhar Card or Voter ID Card, valid Indian Passport, Domicile Certificate.

·   Financial documents: Bank account statement for the last 6 months, Income tax returns, GST returns and profit and loss statement.

·   Business ownership: Registration documents of the business, property and agreement papers if applicable.

Also, business owner should be less than 70 years of age at the time of Loan maturity and should have the business running for the last 3 years. However, some of these criteria’s might not be the same for all lenders and some might also be willing to negotiate a little depending on plenty of factors and final loan terms and conditions.

Features of MSME/SME Loan

Collateral free Loans: A loan of up to Rs.50 Lakh is usually available for businesses which is totally free of collateral.

Quick processing: A loan application processing can be completed within 24 hours and the amount should be disbursed almost immediately.

Flexibility: MSME loans come with convenient EMI options as one has to pay interest only on the amount that they have withdrawn from the loan sanction and borrowers can withdraw as much as they want as per their working capital needs or other business expenditures. They also have the option to pay just the interest amount for the certain period of time and then start paying the principal amount as per their profitability.

Documentation: The documentation and paperwork requirement is very simple and easy and does not has any complex set of requirements.

Pre-approved Loan offer: Businesses also have the option to avail a pre-approved loan offer depending on the business profitability and existence and the field of business it is.

In addition to above features borrowers can also track and make changes to their loan all via online account management option where everything can be done almost instantly and online. MSME loans also have a very higher tenure option in situations where the business is in growing stages.

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