Micro, small, and medium businesses (MSMEs) require financing to establish and grow. The Indian government has introduced many schemes to provide credit to MSMEs. Among the main characteristics of MSMEs is their access to credit. To establish or expand a business, MSMEs require credit or financing.
MSMEs have been provided with credit services by the Government of India through various loan schemes and the financial sector. This article discusses some of the well-recognized MSME loans of 2020 available due to COVID-19 disrupting the business.
Features of an MSME loan
- Quick approval and speedy disbursement of funds
- Vendors charge different MSME loan interest rates
- The maximum loan to MSME is one crore, and there is no minimum loan amount.
- There are several different types of loans: working capital loans, equipment loans, and government scheme loans.
- There is less documentation involved in the application process
- Repayment options are flexible
- From 12 months to 5 years, repayment tenures are flexible
MSME loans fast-track business growth
Loans can finance major business projects
A loan to MSME allows you to borrow a lot of cash, unlike personal loans, with a specific limit. An example of this might be if you are funding a significant business expansion or if you are building new business facilities and upgrading your technology.
Borrowing money is entirely under your control
If you want to borrow money for your business, you don’t have to give an investor a percentage of ownership in return for the funds. This means you can administer your business according to your plans and use the money however you like. You will not have to deal with other entrepreneurs. Unlike other jobs, you will not be responsible for working with others or taking into account their opinions.
You will not get a budget from your lender. You may have to provide your business plan to understand your goals, but they won’t weigh in on decisions after granting you funds. Nobody cares what you do with the money you borrow as long as you repay it with interest.
The funds are easily accessible
If you want to reinvest business profits without waiting for them to grow, it’s better to seek financing from lenders. Whether it’s new equipment or product development, you need cash for it, and you won’t have to wait for years to raise it.
It can also be challenging to find investors to fund your startup. Investors are usually interested in financing established, profitable businesses to get a return on their investment as soon as possible. It takes time for small and startup companies to develop a profitability and stability track record.
Interest rates are usually low
Low-interest rates are often offered on business loans to attract customers. In the lending business, lenders aim to make a healthy return on their loans, but the competition is fierce, which provides borrowers with a favorable environment.
Since personal loans to MSME do not require collateral, they get approved within a few days; businesses usually charge a lower MSME loan interest rate than individuals. Private financing lenders charge higher interest rates to compensate for the risks of providing funds without collateral and without conducting an extensive background check.
You can increase your working capital
You can increase your working capital with business financing, especially if you are experiencing financial difficulties. You can use the loans for emergency funds to cover short-term operations and unexpected expenses without affecting your operating cash flow.