MSMEs are a pivotal part of any economy. Supporting them through funding is crucial to help them level up from a small business status to a fully established one. Therefore, MSME loans are essential today.
The Indian market is currently booming and owes a large part of its economic growth to the micro, small, and medium enterprises, i.e. MSME sector. This sector contributes to over 40% of the total GDP of India and is a critical source of employment for many people.
Many of these enterprises need external funding to lay a solid foundation for their business. To aid in this, financial institutions offer MSME loans in India. This is a credit facility offered to micro, small, and medium businesses to cover any long-term goals, such as growth, working capital, or expansion needs.
Such forms of funding can be beneficial for MSMEs as they allow enterprises to reach their true potential by appropriately using the resources available through funding. This is especially true for female-run businesses, which often face challenges raising funds for their operations and business opportunities.
Due to government intervention, lenders offer MSME loans with the guaranteed support of several schemes, such as the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). This scheme was put in place by the Ministry of MSME and SIDBI to facilitate the cash flow and credit to the MSME sector without collaterals. Falling under this scheme, lenders must:
- Lay emphasis on project viability
- Sanction the loan purely based on the primary security of assets
Furthermore, if the MSME fails to disburse the loan, then the Credit Guarantee system would cover up to 85% of the amount secured by the borrower. Businesses must strictly follow the MSME loan procedure and meet the eligibility criteria to avail these features.
Benefits of MSME Loans
Taking an MSME loan can be a lifesaver for a company. It helps them coast through times of financial turmoil and allows them to continue contributing to economic growth. The government’s support shows their recognition of MSMEs in India, and lenders are catching up to this reality.
Today, MSME loans come with several benefits to boost growth and business activity in the sector. Here are our top three benefits of MSME loans in India.
An unsecured loan means a loan free of collateral. Lenders understand that micro, small and medium businesses do not have access to the same resources as large-scale enterprises. Thus, they waive the requirement for collateral, allowing
MSMEs to borrow funds without placing any assets at stake. This procedure only calls for basic proof of business documents without needing evidence of properties and assets.
Ease of Access
MSMEs do not have access to the resources that a well-established, large-scale business may have. Nevertheless, these MSMEs can grow and expand through different opportunities. All they need is adequate funding, and they can meet their business goals.
In addition to this, MSME loans are affordable due to nominal interest rates decided based on the business’ scale and repayment ability. MSME business loans also have flexible repayment tenures that range from at least 12 months to 60 months.
Since MSME loans are short-term, they are less constricting. There is no prolonged commitment, and business owners can efficiently manage the cash flow, allocating resources appropriately.
Given the short-term nature of these loans, it prevents enterprises from giving up part of their ownership rights due to a minor financial crunch that some external funding can easily cover. This enables them to take charge of their business and make it come to life based on their own goals and aspirations.
Under what circumstances do you need to take an MSME Loan?
While the overarching reason for borrowing funds as an MSME is a need for finances, several reasons come under it. Some of these situations are:
- Purchasing a plot of land for the entity
- Purchasing a factory for manufacturing purposes
- Buying equipment required in production
- Buying raw materials for manufacturing
- Settling operational costs such as wages, rent, and other bills
- Looking at expanding the business
- Marketing and advertising of the goods/services offered
- Renovating or refurbishing the office
Although these are only a few of the circumstances under which MSMEs can take a loan, many more also qualify. It is best to consult your financial institution to gain clarity on it.
Fullerton India’s MSME business loans help you begin or expand your business venture in a financially secure position.
We believe in uplifting businesses of all sizes with competitive interest rates and flexible repayment options. Under our clauses, you can focus on your business entirely without worrying about repayments and EMIs.
Sahar Rashid is the founder of the BenjaNews and the iPhone-Appstore website. She is a professional blogger and article writer.