The MSME loans in India, which comprises around 60 million small and medium business enterprises, contributes approximately 29% to the nation’s GDP and forms the backbone of the Indian Economy. Additionally, around 49% of the export materials are also manufactured by the MSME sector. And this sector also provides employment to a significant part of the population.
However, despite being one of the most crucial aspects of the Indian Economy, this sector regularly encounters numerous challenges. One of the biggest challenges faced by the MSME sector is the availability of affordable credit, hindering growth, and expansion of the industries.
Accordingly, the government has undertaken several measures to ensure the growth of medium and small scale businesses in our country. For instance, several schemes were introduced, under which a small or medium scale business can avail credit with ease.
Apart from these schemes, NBFCs and financial institutions also offer financing in the form of MSME loans to small business owners to meet their various funding needs.
What is an MSME loan?
MSME loan is a type of business loan customized to meet the specific financing requirements of small and medium scale enterprises. Moreover, these loans are unsecured, which means the enterprises do not have to mortgage any asset to avail such a credit. The loan amount can be put towards installing and upgrading new machinery, inventory procurement, improving cash flow, etc.
The following individuals and entities can avail an MSME loan –
- Self-employed professionals –Architects, chartered accountants, company secretaries, allopathic doctors, etc.
- Self-Employed non-professionals – Traders and manufacturers, retailers, service providers, proprietors, etc.
- Entities – Partnerships, closely held limited companies, private limited, etc.
Some NBFCs like Bajaj Finserv also provide pre-approved offers to existing customers on financial products like MSME loans, business loans, etc. These offers make for a more hassle-free loan application procedure while also speeding up the process. One can check their pre-approved offers by sharing their name and contact information online.
There are several reasons why it is the best financing option for small and medium scale organisations –
Simple Eligibility Criteria
MSME loans have nominal eligibility criteria compared to other types of business loans, which allow small businesses to avail them easily. These criteria are as follows –
- Applicants should be residential citizens of India.
- The age of the applicant should be within 25-55 years of age.
- Borrowers must own a business that has been operating for more than three years.
- Income tax returns should be filed for the previous year.
Individuals must go through the eligibility criteria before applying for an MSME loan to ensure that they satisfy all the parameters. Additionally, one should also know the criteria for business loan application approval.
MSME loans also require less paperwork. Therefore, the application process is much simpler. Borrowers only need to provide the following documents –
- KYC documents –Aadhaar Card, Voter ID, PAN, driving license, Passport, or any other officially valid documents as KYC.
- Financial documents – This includes income tax returns filed for the previous year, a copy of Bank account statements for the last six months, profit and loss statement and balance sheet which has been audited by a C.A.
- Documents for proof of business vintage–Borrowers need to submit the following documents as proof of business:
- Self-Employed professional – Registration document or any other document issued in the enterprise’s name.
- Self-Employed non-professional–Registration document for the sole proprietor, identity proof of the owner, GST return, etc.
- Business entities – Partnership Agreement in case of partnership firms, certificate of commencement, Article, and Memorandum of Association for a private limited company, registration certificate under Shops and Establishment Act. Partners and directors of a business enterprise also need to provide their proof of identity.
- Flexi-loan Facility –When applying for an MSME loan, borrowers can avail benefits like the Flexi-loan facility. With this facility, borrowers have the flexibility of withdrawing as many times as required from the sanctioned loan limit.
There are several benefits of this facility such as –
- Borrowers only need to pay interest on the withdrawn amount. Thus, Flexi-business loans result in lower EMI.
- One can withdraw funds as many times as they require without applying for a loan individually.
- Borrowers can pay off the principal amount at the end of the repayment period.
With a flexi-personal loan, borrowers will be able to improve their business cash flow.
Individuals can easily apply online for MSME loans which will enable them to save valuable time. Moreover, they can also track their application status and manage their loan account online.
One can follow the steps below to apply for an MSME loan online –
- Go to the business loan section on your lending institution’s website
- Select the online loan application form and enter employment, financial and personal details
- Submit the application form along with all the essential documents
MSME loans help small and medium scale businesses to meet all their funding requirements which enables them to further develop and expand their operations. It has become a sought-after source of financing in the small and medium scale business sector.