Finance is one of the key factors for any business to succeed or fail. This is true, especially in the case of small business owners. A business loan can help the entrepreneur in hiring staff, buying the necessary equipment, and getting the infrastructure in place. Not only that, organisations that have just commenced their operations require finances for reasons like working capital. Some mature businesses opt for such small business loans for expansion and growth.
From the varied financing options available, small business owners prefer MSME loans. These small enterprises are often regarded as the backbone of the economy. They are the most promising businesses, like the second line of entrepreneurs for the economy, after the large players dominating the market.
The government of India, banks, and other non-banking finance companies (NBFCs) have introduced schemes that can help in providing loans for small businesses known as SME loan.
An organisation needs to fulfill certain criteria to obtain an SME Loan, but it far less than what otherwise would be required in case of normal business loans. Under a typical business loan application, risk-free and profitable businesses are given priority in terms of lending, unlike an SME loan. MSME Loans have minimal criteria for eligibility, depending on the investment in plant and machinery.
Let us look at a few points that make MSME loans a favourable choice for a small business owner-
- MSME loans have minimal eligibility criteria laid by the government to be eligible for the loan
- There are benefits for taxation to such MSME registered organisations.
- Government assistance too is available for MSME loans.
- Unlike lending to specific sectors that are profitable, MSME loans provide an equal opportunity to every category of business.
- SME Loan helps in availing the required funds for capital growth.
- There is no restriction on the usage of funds, and they are available for use for any business requirement.
While MSME loans have minimum eligibility criteria, there are a few requirements that must be kept in mind when you apply for an MSME loan
- The primary requirement lies in a business plan that can be satisfactory for the lender that the funds are used appropriately.
- The business must have appropriate registrations certificates as stipulated by the law in force.
- A projected financial statement shall be required to be submitted to the lender showing how the funds shall be used.
- If the business is not a new, previous years’ returns of incomes shall also be required.
- Other mandatory KYC documents like Permanent Account Number (PAN), address proof, details about the management, and the like.
- If the organisation has previous borrowings, a good credit repayment history shall be useful for availing such finance.
- Collaterals, if any, are required to be furnished to the lender.
There have been significant efforts by the government to promote entrepreneurship and help small business owners by making resources available to them. Startup India and Mudra Loans are some of the schemes used to promote the businesses.