During the early growth stage of the MSMEs, they require appropriate and adequate capital infusion in the form of term loans and working capitals. The sources on which MSMEs were dependent in the recent past are:
Backing up through sales of assets and maintained earning
Loans from relatives and unregulated market. A lot of pressure was on the ancestral property
Personal saving was one option which was most commonly taken by most MSME businesses
There has been a huge increment in the number of MSMEs across the country. Financial support can be applied as a reason for this. However, the picture seems less bright in different geographic locations in India. That’s why many schemes by the central government, state government, and other business loan funding options in the form of NBFCs have come up.
Economic support from public sector banks has been a great feat achieved. Banks of public sector domain have been the front-runner, thus far, in providing financial help to most MSMEs.
MSME lending is generally offered to entrepreneurs and SMEs to start new businesses or to expand the current business operations. Small organizations, including production units with the small scale of manufacturing and service providers, may also apply for loans for business.
If you are wondering how to apply for MSME loan, you must satisfy the following eligibility criteria set by the lending organizations, which are banks or NBFCs.
The growth of business must be stable.
The business should be profitable for the past two years.
The business must have filed an income tax return.
The MSME loans range from a minimum of 1 lakhs to a maximum of 50 lakhs. The lenders must be provided with the capability to repay the loan from the borrower in a periodic manner. These loans are usually sanctioned for a period of 1 year to 2 years.
Features of MSME Lending
Economical: The interest rate offered by different NBFCs are quite reasonable and fluctuates anywhere between 18% and 28%. The rate mainly depends on the profile of the borrower and his credibility. Nevertheless, the creditworthiness of the business is also taken into account. And if the business owner has a good CIBIL score, he is more likely to get low interest rates and vice versa.
Great perks: Special offers are allowed for women entrepreneurs who meet specific eligibility criteria. Many NBFCs offer business loans for women at flexible terms and conditions.
Unsecured Loans: These loans, unlike home loans, are available without collateral. It makes sure that personal or business assets are not at risk in case of failure in repayment of the loan amount. Also, these loans are offered without guarantors. So, small business owners also get access to unsecured business loans to grow their business upwards.
MSME is an integral part of our system and also helps in our country’s economic growth. So, taking care of MSMEs is in the national interest. Moreover, due to a sudden boom in the number of start-ups, the competition has also increased manifolds. So, the availability of constant cash inflow is something each of the MSMEs craves for. Now, cash inflow has mainly two forms.
Cash inflow in the form of profit: This is the cash that each business has made a profit and is used for funding the business in the ensuing round.
Cash inflow in the form of loans: This is the cash that is being offered from different organizations in the form of banks and NBFCs.
Now, loans are offered by both banks and NBFCs. But the trend in recent past has depicted that NBFC business loans are much more in demand compared to bank loans. This is mainly due to the reason that getting a loan from a bank is a challenging and cumbersome task. And if the borrower has a bad credit history, it is next to impossible to get a loan sanctioned from the banks. Thus, small business owners keep away from availing credit services for their business.
However, this is not the case with NBFCs. Getting a loan from NBFC is as simple as just applying for the loan and getting it instantly. Moreover, the flexible nature of NBFC loans also helps its cause in being the trend. A minimal amount of documentation is required, and precious time is saved.
The capital of the business owner need is satisfied instantly as the processing time is extremely low. Generally, the NBFCs process the loan application and disburse the loan amount within a week. Moreover, businesses with a bad credit history are also given loan tough at a higher rate. NBFCs holistically check the creditworthiness of the borrower by taking into account the business performance and vintage in the account.
The credibility of a business is considered as a parameter for deciding upon the rate of interest for any NBFC loan. There’s always a high chance of getting the required MSME lending in the form of NBFC loans. Thus, MSME in India has a vast diversity of lending options available to them, which helps in the cause of growth.
If you too want to avail an MSME loan from an NBFC, you can avail the credit services from ZipLoan. It is an RBI registered NBFC that offers business loans at minimal documentation and easy to meet eligibility criteria. It approves and disburses the loan amount within three days, helping the small business owner get instant access to funds for their business.