In recent times, the MSME sector in India has scaled unprecedented heights in terms of growth and employment generation. This growth has further been bolstered by the availability of MSME business loans that has successfully bridged the gap between these enterprises and a formal source of credits.
Generally, small scale enterprises require finance to purchase equipment, expand services, or upscale production. This credit form offers the borrowers substantial credits to manage business operations without hassle. MSME full form stands for Micro, Small and Medium Enterprise and availing a loan for such a business requires satisfying minimum eligibility and documentation. The interest rate levied on this credit form is quite affordable and borrower-friendly. Hence, a borrower must be aware of the variables linked with MSME loan to make the best use of the amount sanctioned.
Factors to check before making an MSME business loan application
1.Credit score
The primary factor that affects the loan disbursal is a borrower’s credit score. Ideally, lenders give weightage to 750+ CIBIL score and reliable repayment history. As the MSME business loan is an unsecured credit variant, the risk from the lender’s side is higher. Hence, a business owner must maintain a good credit history by clearing outstanding debts and making timely repayment. For instance, knowing what to do if the business credit score is low is the first step to efficient finance management.
2.Financial and bank statements
Showing a CA audited financial statement substantiates an enterprise’s smooth liquidity flow. Lenders are more inclined to sanction loans to the business, engaging in a lucrative cash flow. The digitalisation of the financial process has made the tracking of repayment quite convenient. Hence, an MSME business loan borrower must keep these documents handy for hassle-free application.
3.Loan tenor
Before initiating an MSME business loan, an individual must check his/her repayment capacity. Determining the loan tenor can aid a potential borrower in deciding this factor. A comfortable repayment tenor will help individuals make efficient savings on their disposable income. Ideally, an MSME loan offers a flexible repayment tenor that extends up to 60 months. This initiates better financial planning and expenditure. It is essential to know that opting for a longer tenor can increase the total interest outgo
4.Interest rate
Again, the interest rate plays a crucial role when deciding on a loan variant. This factor determines the EMI payments and total processing charges. Ideally, EMI is calculated by evaluating the principal amount and interest rate. An MSME loan usually comes with an affordable interest rate that is perfect for small scale entrepreneurs. This feature makes an MSME loan an efficient financing solution for MSMEs during emergencies.
5.Loan amount
MSME full form, which stands for Micro, Small and Medium Enterprise is a credit form designed to support potential entrepreneurs. Hence, lenders offer a high loan value against this credit form with minimum eligibility. Moreover, the borrower doesn’t need to pledge any collateral against this loan. Business owners looking to manage their small scale spendings can avail an MSME loan without hassle.
A potential borrower looking for substantial funds can compare financial institutions offering an affordable business loan. For instance, NBFCs, like Bajaj Finserv, offers up to Rs.45 lakhs at attractive interest rates.
The financial institution also provides pre-approved offers on products like business loan, personal loan, etc. This feature eases out the loan application process further. An MSME business loan is a convenient finance source for existing and new entrepreneurs looking for corporate expansion.
Hence, researching the credit form factors before loan initiation would help borrowers save competently on interest payment.
