So starting a new business? Looking for a loan? Haven’t heard about MSME Loan before? So keep reading. Acronym for MSME is Micro, Small, medium enterprise. Nowadays it is also known as SME for small and medium enterprises. These types of loans are provided to young businessmen, new business firms, startups and women entrepreneurs on a short term basis. Now before we move ahead. Lets under what is the meaning of micro, small and medium enterprises –
- Micro Enterprises – According to the MSMED Act, 2006, an enterprise that is engrossed in the production of goods and where investment in plant and machinery does not exceed Rs. 25 lakh is called micro-enterprise.
- Small Enterprises – It’s an enterprise where the investment in plant and machinery exceeds Rs. 25 lakh but is less than Rs.5 crore.
- Medium Enterprises are enterprises where investment in plant and machinery is more than Rs. 5 crores and less than Rs. 10 crores.
Since MSME loan is an unsecured loan, so eligibility criteria are also very minimum. Some of the essential eligibility criteria are as follows –
- Type of Business – it means is your enterprise is a Partnership firm, One person company or a Limited company.
- Last 12-month sales report – You have to submit the sales report of the previous as well
- Proper location – Your enterprises should not be located in a blacklisted place or area
- The enterprise should not fall under blacklisted firms, or any lawsuit is going on against the enterprise.
These are essential eligibility criteria though there many other factors that vary from lender to lender.
MSME loan is a very effective way of providing financial support to the new business. With MSME loan for new business, a new company can buy new types of equipment and expand its production capacity, which in turn helps in capital formation. MSME Loans are mainly meant to help small and medium scale
enterprises.
Advantages of MSME Loans
Every business needs financial help at a certain point in time, and MSME loans for new businesses are the best option for this enterprise. Let’s see some factors which have made MSME Loans so popular and reliable source of finance in India –
- Seasonality of demand – In India, the need for products changes with seasons. E.g., the order for the sweater is high is winters and is almost nil in summers. Small business enterprises can’t afford to change heir line of production so quickly as a result during the lean season they face a setback.
Availing MSME Loan is easy and hassle-free. MSME loans for a new business can help these enterprises to flourish during the lean time of the year. - Exercise full control – These small businesses also need finance daily to run their business smoothly. Funding is difficult to obtain, and other sources of loans seek to control part of the company in the form of collateral security. MSME is the best source of finance for these businesses without the
liquidation of control. - Low-interest rates – one the best part of MSME loans is that the price of interest is very competitive as compared to other forms of credit. It merely means that it ensures that a minimal amount is spent on repayment of the loan, and most of the part is used by businesses to meet their financial needs.
- Short term loans – MSME loans are mainly used by the business for a short term basis to meet to short term financial requirement of the company. So the firm spends years paying installment to the lender. Firms can allocate available resources efficiently.
Disadvantages of MSME Loans
- High credit score – Business looking SME loans must possess high credulity in the market. So individual whose credit score fall below the required number cannot apply for MSME loans. Most of the micro and small scale enterprises have a low credit score due to low market share.
- The full amount is never provided – Many times the whole amount is not sanctioned. Only a 50% loan is granted and repairing 50% takes time, and it’s a tiring job.
Conclusion
MSME Loans are the best source of finance for small scale and medium scale firms. Even the processing cycle is high-speed, and loans get sanctioned with 24 hrs in most of the cases. After the critical evaluation of the pros and cons. Advantages overshadow the negative aspect of MSME Loans. The procurement of funds is more important. After all, something is better than nothing. Low-interest rates, no collateral security, and easy purchase are not a bad deal at all. As far as credit score is concerned, small firms can consult the finance expert for their suggestion. This will not only help to acquire loans easily and quickly but also will create goodwill in the market. So the best deal for today is – Micro, Small and medium scale business should go for MSME loans.
