A company’s success and growth largely depend on its financial condition. Since personal savings and resources are often insufficient to fulfil an enterprise’s high financial needs, many business owners borrow Business Loans to grow their company and achieve new heights. If you are a new business owner planning to apply for a Micro, Small, and Medium Enterprises (MSME) loan for the first time, here is a beginner’s guide to demystifying these funding options.
What is an MSME Loan?
Just like a Personal Loan fulfills personal requirements like education, medical emergencies, home renovations, wedding expenses, travel costs, and big-ticket purchases, SME finance helps entrepreneurs meet growing business needs, such as purchasing inventory, upgrading equipment, hiring staff, building working capital, etc. MSME loans are loans that business owners borrow to expand their businesses.
Who Is Eligible for an MSME Loan?
As a business owner, you must meet the particular lender’s eligibility criteria to apply for an MSME loan. Whether you are a Sole Proprietorship, Partnership Firm, Private Limited Company, Public Limited Company, or Limited Liability Partnership, you can apply for a Business Loan if you have been operational for the last six months or more. Lending institutions also have a minimum annual turnover requirement to ensure timely repayment.
Documents Required to Apply for a Business Loan
Depending on your business type and nature, you must submit the following documents to apply for SME finance:
- Bank statements
- Business registration proof, like Business Registration Certificate, GST filing, Gumastadhara, Trade License, Drug License, TIN, VAT registration
- Individual and company PAN card
- Partnership deed
Stepwise Procedure to Apply for an MSME Loan
Here is the step-by-step process to apply for a Business Loan for MSMEs:
- Fill out an online application form with your personal, financial, and business details to receive an MSME loan offer.
- Upload the required documents online and wait for the verification process to complete.
- Receive your approval and disbursal in a short period.
MSME Loan EMIs and Repayment Terms
When you borrow an MSME loan, the lender distributes the loan amount and the applicable interest rate into Equated Monthly Instalments (EMIs). That means each EMI contains a small component of the principal and interest amounts. Reputed lending institutions offer flexible repayment terms you can choose according to your repayment capacity.
Based on your budget, you can either opt for a monthly EMI repayment scheme or go for a bi-weekly instalment plan to accelerate the repayment. An EMI calculator helps calculate EMIs for various loan terms, helping you make an informed decision according to your repayment capacity.
Collateral Requirement for SME Finance
You might need money to cover your business-related expenses. However, you may not possess an asset to pledge as security or not want to put your asset at risk. That is why many loan companies, like Lendingkart, provide Business Loans without collateral or security.
SME finance is a great funding option when you need capital to expand your business. Additionally, it preserves cash flow in challenging times. External support from an MSME loan can improve your finances during fluctuating market conditions. Briefly put, raising an SME loan is essential for a rising company’s growth and development. Use this beginner’s guide to make informed decisions and take appropriate actions.
