MSME Loan: Why It’s The Perfect Choice For Small Business Owners
Why an MSME loan
Loans to MSMEs have many advantages, including the subsidy provided by the Indian government. The Ministry of MSMEs was founded in 2007 and since then has taken the initiative to provide the greatest support and facilities to all micro, small and medium enterprises to increase their income, cash flow and business resources. employment at the individual level. The ministry has launched more than a dozen programs to date, including the most famous MUDRA, PMEGP, Startup India, etc.
There are many tax exemptions for MSMEs and startups, including a capital gains tax exemption and a 100% tax exemption for the first 3 years of the startup. Financing aid and credit guarantee fund for MSMEs. There is also a Quick Legal Process designed to help startups resolve legal issues comfortably and quickly. A better start-up exit process is created so that entrepreneurs can enjoy the best benefits available.
Objective of MSMEs
· Acquire land or a factory or factory or build on this land.
· For the purchase of machinery and plant equipment with laboratory and testing resources, furniture and other important accessories necessary for proper operation.
· To meet working capital needs such as goods, raw materials and inventory in progress.
· While waiting to receive payment from a party but must pay creditors for the continued supply of goods / services.
For the marketing and advertising of the company
· Business expansion or launch of a new product line.
Apart from the above, the money required for any other type of assistance not mentioned above but is necessary for the operation of the business.
To benefit from a MSME loan one must have a well structured business plan and be able to demonstrate the challenges, strategies, options of the market before applying for an MSME loan.
· Business registration: whether it is a well-established business or a new start-up. A business must be registered to avail of the benefits or grants of the programs provided by the Indian government.
· Income statement: In the case of running a business, an income statement may be necessary to ensure the smooth running of the business and validate the loan details.
· 1 year ITR: Last year’s income tax returns to check if you paid all of your taxes on time.
· Credit History: Lenders prefer to check the history of loan repayments made by borrowers to predict future possibilities. A good credit history guarantees a higher eligibility potential.
· Adding a co-borrower will increase the eligibility of the application.
· If any collateral or collateral is provided to secure the loan, all necessary documents should be submitted to the Bank at the time of application.
· Bank statement of the last 6-12 months to know and validate the transactions of the borrower’s account.
· A realistic projection for the business must be demonstrated.
Documents required for an MSME loan
MSME loans are unsecured in most cases, however, depending on the specific situation and loan requirements, collateral may be required. The documents below are required for an unsecured loan.
· KYC documents: Aadhar card or PAN card, valid Indian passport or voter ID card / driver’s license etc.
· Proof of address: Utility bills, Aadhar card or voter ID card, valid Indian passport, certificate of residence.
· Financial documents: Bank statement for the last 6 months, Income tax returns, GST returns and profit and loss statement.
· Company ownership: Company registration documents, ownership and agreement documents where applicable.
In addition, the business owner must be under 70 years of age at the time of loan maturity and must have had the business in operation for the past 3 years. However, some of these criteria may not be the same for all lenders and some may also be willing to negotiate a bit depending on many factors and the final terms of the loan.
Characteristics of the MSME / SME loan
Unsecured loans: A loan of up to Rs.50 Lakh is generally available for businesses and is completely collateral free.
Fast processing: The processing of a loan application can be done within 24 hours and the amount must be paid almost immediately.
Flexibility: Loans to MSMEs come with convenient EMI options, as interest only needs to be paid on the amount they have withdrawn from the loan sanction and borrowers can withdraw as much as they want based on their cash needs. working capital or other business expenses. They also have the option to pay only the interest amount for a certain period and then start paying the principal amount based on their profitability.
Documentation: The requirement of documentation and paperwork is very simple and easy and does not have a complex set of requirements.
Pre-approved loan offer: Companies also have the opportunity to benefit from a pre-approved loan offer depending on the profitability and existence of the company and the field of activity in question.
In addition to the above features, borrowers can also track and make changes to their loan through the online account management option where everything can be done almost instantly and online. MSME loans also offer a very long tenure option in situations where the business is growing.