Effective Ways to Get an MSME Loan for Business Growth in India

According to report published on January 2020, the MSME segment of India consumes only around Rs.17.75 lakh crore as business loans. In comparison, larger enterprises enjoy a credit exposure of Rs.46.7 lakh crore. Although delinquency rates are higher for the bigger businesses, financial institutions still prefer lending to conglomerates, instead of to the MSME sector.

  • India’s MSME sector faces a $380 billion credit gap.
  • This sector accounts for around 45% of the country’s manufacturing capacity.

While thousands of smaller enterprises face rejection while applying for MSME loan, following the suggestions listed below should help such companies secure the financial assistance that they require. 

  • Determine the scale of your enterprise

The definition for micro, small and medium business has changed over the course of the last few years. Therefore, before applying for an MSME loan for new business, you need to determine whether the company you operate is categorised as a micro, small or medium business.

Micro enterprises are those companies where investment is below Rs.1 crore. The annual turnover for these businesses must not exceed Rs.5 crore. In case of a small enterprise, investment is limited to between Rs.1 crore and Rs.10 crore, while annual turnover stays limited within Rs.50 crore.

Lastly, companies with an investment of up to Rs.50 crore and an annual turnover of up to Rs.250 crore are categorised as medium-scale enterprises. After determining the scale of your operation, MSME loans can become an efficient financial solution for your company. Therefore, understanding ‘what is MSME’ is a critical step in availing the necessary credits from lenders. 

  • Check whether your business meets the eligibility criteria

Before opting for an MSME loan for a new business, one must determine whether his/her company meets the outlined eligibility factors. While exact requirements can differ between the various lenders, here are some basic aspects that MSME loan applicants must fulfil – 

  • Applicant should be between 18 and 65 years of age.
  • Only limited liability proprietorship, sole proprietorship, partnership firms, private and public limited companies are eligible for such loans. 
  • Businesses with a minimum vintage of two years can avail these loans. Nevertheless, some financial institutions extend MSME loan for new business as well.
  • Good repayment history and credit rating.

This last point is of great significance. If one already has several outstanding dues in the market, availing an MSME loan can prove extremely difficult. In such a case, it would be prudent to service existing debts before opting for a fresh loan. 

Similarly, understanding what to do if your business credit score is low is vital to avoid MSME loan rejection. Lack of creditworthiness can stem from previous delinquencies. Thus, as a rule, business owners should strive to repay all dues within the stipulated time.

  • At just 12.5%, the non-performing asset (NPA) ratio is substantially low for the MSME sector, when compared to an NPA 19.7% for larger companies.

Apart from meeting these requirements, applicants will also need to complete an extensive documentation process to support their claims.

  • Understanding the documentation process

Many companies are so focused on considering ‘what are the benefits of MSME loan’ that they fail to learn about its documentation process in detail. Applicants need to submit the following to avail such credit from NBFCs – 

  • Detailed business plan, outlined on paper.
  • Passport-sized photographs.
  • Filled in MSME loan application form.
  • KYC documents.
  • Identity proof documents.
  • Residential address proof documents.
  • Business address proof.
  • Applicant’s income proof.
  • Balance sheet and profit & loss statements belonging to the company.
  • Income tax returns.
  • Business registration and related licenses.
  • Sales and municipal tax documents.

One should also inquire about additional documents required during the application process. Doing so should further streamline the process. 

  • Choose reputed financial institutions

One can look for the best offers and nominal rates on a business loan from reputed lenders, such as Bajaj Finserv, to secure a better deal. This lender offers MSME loans for new businesses worth up to Rs.20 lakh. 

It also provides pre-approved offers to existing customers to ensure a quick and simple application process. These offers are available on a range of unsecured credits, such as personal loans and business loans. You can check your pre-approved offers by submitting full name and contact information.

The simplest way to ensure MSME loan approval is to maintain an impressive credit history for your business. Always consult your chosen NBFC before application to inquire about eligibility and documentation process. Being aware of these factors is the most effective way to avail funding for all business expenses. 

The MSME sector is the lifeblood of the Indian economy. Even so, these enterprises face immense difficulty in securing the necessary funds from financial institutions. Micro, small and medium enterprises must heed stringent guidelines to ensure an easy approval of MSME loans.

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