For a business to run successfully, you require more than just skill and patience. A healthy positive cash flow is essential to the success of any organization. Because of the nature of small and medium-sized businesses, there may be occasions when you must face uncertainty. It could be due to an increased demand you didn’t expect, late payments, or rising expenses. The bottom line is that, as an MSME business owner, you must be able to control overhead costs to keep the show running.
We often hear about the ability to sell, advertise, and brand a business as talents required to survive in the marketplace but one of the most undervalued abilities that may make or break a business is the capacity to manage cash flow. Businesses do not need to rely on the informal credit sector or pay unreal interest rates just to meet their business goals. There are plenty of new financing options available for small businesses, such as banks and NBFCs. As a young entrepreneur, you can use the financial resources around you to grow your business. You can also make use of the various MSME loan schemes provided by the government.
Why should you take an MSME business loan?
An MSME business loan is simple to obtain for new business capital or funds for business expansion, and the entire process is simple. The documentation is minimal, and the loan amount is authorized immediately, making it hassle-free and a convenient option for financing.
2. Reduced interest rates
MSME business loans are provided at low-interest rates. This benefit means that just a minimum amount is spent on MSME business loan principal and interest repayment, leaving the remainder available for critical business needs. With more cash on hand, small businesses can take more risks and broaden their services to gain market share.
3. Collateral-free loans
MSME business loans are collateral-free, which means you don't have to pledge the security requirement of land or property ownership for the loan to be approved. MSME business loans are intended to help small businesses in increasing their output, hence they do not require collateral to be approved. As a result, MSME loans are an important source of funding.
MSME loans are generally used by businesses for short-term financial needs. Since there is no long-term commitment, you can manage the cash flow effectively and allocate available expenses accordingly.
MSME business loans are a catch-all word for the various kinds of financing available to this sector from both governmental and private lenders. Because small businesses usually operate with limited resources and liquidity, these loans are a critical component in keeping the MSME ecosystem afloat. Let's take a look at some of the tips you can keep in mind while applying for an MSME loan.
1. Know your MSME business loan purpose
Before you apply for a loan, you should decide how you will use the loan amount for your business. You should carefully plan your spending and the payment timeline. Most lenders will provide working capital loans for a variety of business purposes such as day-to-day operating expenses. The purpose informs you about how much money you can borrow and which financing alternatives are available to you. This way you get a clearer picture of your way forward and understand the right type of loans for you.
2. Always compare the types of loans
Before applying for an MSME loan, you should always thoroughly research the MSME loan eligibility criteria. The MSME loan eligibility criteria can be found on the websites of the financial institutions you are considering. You can also look at some of the MSME loan schemes provided by the government such as the PMMY and PMS schemes. It is preferable to conduct your eligibility check before applying. The lender will review your credit score and credit profile once you apply for an MSME loan. Too many enquiries for a credit profile check in a short time is not a good thing. Each lender will have different qualifying requirements and maximum loan amount. If you check these parameters ahead of time, you will only apply to companies that meet your needs. You should carefully consider all of these aspects before deciding to apply for a loan with a few different lenders.
3. Keep the documents ready
■ Personal Identification (KYC) documents such as PAN, Aadhaar, Passport, Voter's ID, and Driver's License.
■ Registrations such as Shops and Establishment Certificate, Factory Registration Certificate, and Small-Scale Industries License are further kinds of business identification (SSI)
■ MSMEs should carry their Udyam Registration Certificate and number.
■ Returns of Income Tax (ITR) and Goods and Services Tax (GST)
■ Business and personal bank statements - Bank statements are necessary to assess your current and general cash flow patterns, which will influence loan approval, loan tenor, and interest rates.
4. Create a repayment strategy
You must have a repayment plan in place before entering into a loan agreement. Every loan has an EMI payback requirement. You must consider your current business expenses and obtain a loan that may be comfortably repaid. You can choose your tenure to keep the EMI low. Never miss or default on your EMI payments because it can harm your credit score.
MSME loans are an excellent tool for helping small business entrepreneurs in supporting their business budgets. You can reduce unnecessary delays and improve your chances of loan acceptance by conducting some research in picking the correct lender and evaluating your MSME loan eligibility criteria and documentation requirements.
Planning to evaluate the loan amount that you require and how you intend to use it, as well as having a repayment plan, can help you make the best use of the cash to get the best results for your business.