The MSME sector in India contributes greatly towards the entrepreneurship development of India, thereby contributing to GDP and creating jobs for lakhs of citizens in urban as well as rural areas. The government of India has introduced several loan schemes for this sector to help them avail financial backing for their businesses.
Many financial institutions, like leading banks, NBFCs, and other lenders, offer MSME loan under schemes introduced by the government of India, such as the Credit Linked Capital Subsidy scheme (CLCSS), Credit Guarantee Fund Trust for Medium and Small Enterprises (CGTMSE) to name a few. These schemes allow MSMEs to access credit for business needs, without having to put up any security to avail of the loan.
More and more young entrepreneurs are entering this dynamic sector and it is crucial to understand MSME loans, government schemes and other features that can help them scale up for their business success.
Here are some tips for young entrepreneurs in India, who want to opt for a MSME loan:
Identify the Purpose for MSME loan
Before applying for a loan, it always helps to have clarity on how the funds are going to be used and what they will help the business achieve. Similarly, young entrepreneurs must remember to chalk out the different short-term and long-term needs of their business and understand which of them can be met by opting for a loan.
For example, small, medium-sized businesses are in constant need of cash flow or working capital, and a MSME loan can help you with the line of credit. Be it working capital, paying off workers, setting up an office space, or expanding the business, a MSME loan can help you achieve it all.
Know the Eligibility Criteria
Different lenders have their own set of criteria and eligibility checklist that MSME loan applicants must comply with. For example, some lenders make it mandatory for doctors who need an MSME loan to have a running practice of at least 1 year.
If you end up applying for MSME loan too many times or create ample enquiries in a short span then this could affect your credit score, thereby affecting your chances of securing business loans or other kinds of loans in the future as well. This is why it is very important, especially for young entrepreneurs, to check the MSME loan eligibility criteria of different banks and NBFCs, before they select a lender.
Understand the Product and Compare
MSME loans are collateral-free as they fall under the unsecured business loan type. These types of business loans are tailored to suit the financial needs of small and mid-sized businesses, offer competitive interest rates and also flexibility in repayment tenure.
Different lenders will offer different benefits like preferential interest rates, higher loan amount sanction, quicker loan disbursal, longer tenure, etc. It is crucial to understand the loan features and benefits from multiple banks and NBFCs, compare their offerings in detail and select the one that suits your business needs the most.
Keep Your Documents Handy
This is a key step in MSME loan processing, as lenders will not be able to help speed up your loan process or offer quick disbursal if you have not submitted all documents on time. Some lenders also ask for special licences, depending on the business sector and nature of your business. From personal identity documents to business KYC documents, you will need to keep it all handy.
Be Ready with Your Repayment Plan
It is wise to have a repayment plan in place before you are applying for a loan. This will help you calculate your monthly expenses and understand just how much EMI you can handle on a monthly basis, without ever defaulting on your payments. Defaulting loan payments could affect your credit score largely and be detrimental to your business.
Enrol for the MSME databank
If you own a Micro, Small or Medium-sized Enterprise, then you need to be part of something known as the MSME databank, which is an all-inclusive database of MSMEs who’ve set up their operations in India, till date.
To be a part of a database, a MSME proprietor will need to have a PAN card in the name of their business and UAN of the business entity. It’s a simple online process to become a part of this database and there are many perks of doing so as well, because the MSME databank can open a host of business opportunities like providing capital, facilitating growth, etc.
In Conclusion
Young entrepreneurs have entered the MSME sector and played a pivotal role in making it a backbone of the Indian economy. To continue this growth and contribute to the country’s GDP, young entrepreneurs need to know all about government schemes and business loans like the MSME loan. Your small or medium-sized business can be all set for a fast trajectory growth and a MSME loan can add fuel to this growth. Follow these quick tips and do ample due diligence before you finalise on your loan requirement and sign the dotted line.
