How You Can Get MSME Loans for Small business?

How You Can Get MSME Loans for Small business?

“A Big Business Starts Small”

The world economy has suffered as a result of the corona pandemic. In India, more than 97 percent of households saw a drop in income due to the lockdowns, which is accompanied by a 7.8 million reduction in salaried positions in November 2021 alone. Moreover, the unemployment rate is staring at an average of 7%, which is not a good sign.

If chance doesn’t knock, build a door, and this proverb holds for all aspiring entrepreneurs who have been nurturing a goal of beginning their own business and making a difference in the world. However, an entrepreneur’s existence is packed with several problems.

The first and most important of which is obtaining a small business loan to satisfy their working capital requirements, inventory purchases, operational expenses, and expansion ambitions. Due to a lack of loan facilities with reduced interest rates, many productive enterprises with significant growth potential have had to close their doors. The regulatory authorities, on the other hand, have taken note of this obstacle and have devised regulations to foster entrepreneurship by opening new channels to disburse business-friendly loans.

The government’s efforts to restore the economy with a fiscal stimulus plan and the make in India campaign are paying off, resulting in the availability of liquid money for businesses and retail borrowers.

Under Several schemes launched by the Ministry of Micro, Small, and Medium Enterprise (MSME) to boost the economy, it has become very easy to avail loans for small businesses at an economical interest rate. As per RBI’s instructions, the banks are liable to lend a target of their funds to MSME’s to promote small businesses across India. The banks have already sanctioned more than 2.5 lakh crore of the loan amount to small businesses under MSME till July 2021.

Advancement in technology has enabled the fast process when it comes to the borrowing of loans after factual verification of the borrower to avoid defaults and timely payment of the business loan. As a result, there is no need to stand in long queues, and one can apply for loans from the comfort of their home or office.

What is an MSME loan?

“I dreamed of success, then I woke up and started working for it.”

The MSME or SME (Small and Medium Enterprise) loan facility for small businesses was created to provide working and seed capital by banks and Non-banking financial companies (NBFC) to existing or new businesses operating in the manufacturing or service sector to help them establish and grow their venture, thereby strengthening the economy by generating revenue and employment.

They are classified into three groups :

  1. Micro – Investment doesn’t exceed Rs. 1 crore and revenue equal 5 crores or less.
  2. Small – Investment doesn’t exceed Rs. 10 crores, and revenue equals Rs. 50 crores or less
  3. Medium – Investment doesn’t exceed Rs. 20 crores and revenue equal Rs. 100 crores or less

How to apply for a loan under MSME?

“What you do today can improve all your tomorrows.”

The RBI has formulated a user-friendly, paperless procedure for the borrowers to fasten the process and benefit more and more businesses.

  • The first step is to register your business under MSME on the official website and fill in the required information to get your UAN (Udyog Aadhaar Number).
  • After you get your UAN, click here and choose the link under the heading, “For those already having registration as UAM,” to finish the registration process.
  • The next step is to either apply for the loan while submitting your documents directly to the banks/ NBFC’s or you have an option to go with a professional online platform like OneNDF, offering the service of acting as a bridge by communicating with a number of lenders in one go and speed up the loan disbursal process.

It eases the whole process of application and disbursal of loans paired with offering other financial products and services, namely, Loans, credit ratings, property title search, and valuation, insurance, etc.

On the one hand, they help the financial institution make sound decisions when it comes to approval of loan based on the credibility of the applicant, and on the other hand, it saves the effort of the small business owners to individually reach out to every lender and offers a common platform to do so.

Check your Eligibility

eligibility checklist

“Life is too complicated not to be orderly.”

Though every borrower has their eligibility criteria before they approve the loan application of an entrepreneur, there are a few basic guidelines that act as a prerequisite to qualify, which are as follows.

  • The applicant’s minimum age should be 21 years at the time of application, and the maximum is 65 years in case of salaried and 70 years in case of self-employed.
  • They can be either an Indian national or a Non-resident.
  • The minimum turnover varies from Rs. 50000 onwards, and the company’s vintage period that is the time since they are operational, ranges from 6 months to 3 years depending on the borrower.
  • The applicant needs to have a permanent residence or should be residing in a rented one for more than a year.
  • The minimum CIBIL, i.e., the credibility score, varies between 650 to 685, depending on the borrower’s policies.

Features of MSME

  • Mortgage-free – As per the RBIs guidelines to the banks, one can avail of the maximum loan amount of Rs. 10 lakh without any collateral.
  • Less time Consuming – Gone are the days when it used to take months to apply and avail of a business loan. The plans under MSME are quick and take a week’s time for approval and disbursal.
  • Ownership Control- Unlike other finance options via venture capitalists under MSME loans, there is no condition to share the ownership with the lender, and the entrepreneur has full control over the operations and proprietorship.
  • Affordable interest rate – The interest rates are competitive, starting from 7% to 19%, contingent upon the CIBIL score and financial track records making them easy to repay without worrying about the increase in operational expenses.
  • Time frame- The small business owner can choose from the time to repay the loan that could be three years or more, giving them ample time to utilize the funds to the maximum.
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