Dedication alone is not going to help you run a successful micro, small or medium enterprise. For that, you need a stable flow of cash. Without it, you will never be able to rise from an unexpected fall; unforeseen rise in demand, delay in payments, fluctuations in the market, unexpected increase in the price of goods; the list can be endless. And you have to have the required amount of cash at your disposal to keep your MSME venture running.
The Internet abounds with articles on tips to sell fast, market-campaigning strategies, and the ability to brand yourself well. But it seldom has guides to offer when it comes to effective money management.
The stories of businesses paying exorbitant rates of interest, approaching unrecognized lenders to meet their financial emergencies, and the instances when they had to look for informal lending; all are now things of the past. At present, if you are a young entrepreneur, all you need to do is to apply for an MSME business loan.
An MSME business loan is a collateral-free form of financing financial institutions offer businesses. This helps young, and new entrepreneurs bear their various business-related expenses. To avail of this loan, however, your company should either be a micro, small, or medium enterprise.
Benefits of an MSME loan
• Easy access to financing
Unpredictability is an essential element of the Indian economy. You may have an excess flow of money during the high seasons. And when demand comes down, you will start counting every penny. In such an instance, you will need financing at the earliest. Applying for an MSME business loan is a hassle-free process. And it requires minimal documentation. You will receive the funding needed in no time.
• It is collateral-free
The government becomes your guarantor when you apply and become eligible for an MSME loan. This allows lenders to lend you collateral-free.
• Flexible repayment tenure
An MSME business loan is designed for those with low credit scores. And you receive flexible loan repayment tenures. It can extend from one to five years.
You also avail affordable rate of interest, pre-approved offers, and the ability to manage your financing from your lender’s official portal.
5 MSME business loan tips
To avail of these benefits, you must ensure you are eligible for the loan you plan to apply for. Take measures to prove your loan-repayment capacity to your lender. As a new entrepreneur, you may have a tough time proving this. See to it that your finances are clear. And your business plan should have detailed information on your finances. You should also be realistic with regard to your expectations. If you have a few years of service in the field, it is well and good. Otherwise, try your best and wait patiently.
Here are five additional tips that would definitely help you in this regard:
• Why do you need the loan?
This is the first question you should answer even before applying for an MSME business loan. You may be looking for funding to boost your business’s cash flow. Or you may be planning new acquisitions. Whatever the purpose, look for the type of loan that fits into it and apply for it.
You should also determine the loan tenure and the amount to be repaid. This deserves utmost importance as you are a new entrepreneur. Your business needs lots of time to get settled in the market. Take all factors into account when applying for funding.
• Be ready to submit collateral
If you cannot prove your ability to repay your loan, the lender may require you to submit collateral. Be prepared to do so because it will increase your likelihood of availing of the loan.
• Have a healthy CIBIL score
Your credit score is vital in helping your lender assess your loan repayment capabilities. Certain firms even assess your personal credit score when considering your loan application. Do the following to improve your CIBIL score:
♦ Your loan repayment history
♦ Your existing debts
♦ Type of business
♦ Credit utilization ratio
• Keep all your documents at hand
Keep all your documents at hand. This will create an impression that you are prepared enough for your new journey as an entrepreneur. Keep the following documents ready along with your application form:
♦ Proof of identity
♦ Proof of address
♦ Bank statements of a few months, as mentioned in the application form
♦ Latest ITR along with computation of balance sheet, income, and profit and loss A/C for the last 2 years
You may even be required to submit documents related to sole proprietorship and related aspects.
• Seek professional assistance
If you feel that your business plan is not detailed enough, seek professional assistance. Hire an accountant for the purpose. If yours is a well-established firm, you can consider adding an accountant to your board of directors. Doing this will help ensure that your business plan is detailed enough to convince prospective lenders.
Lastly, take care to ensure that your bank balance is quite high. This will create the impression that you have sufficient funds to repay your loan on time. Some lenders assess your daily bank balance when considering loan applications.
If you are a new entrepreneur, be kind to yourself and have patience. Build up your business before applying for an MSME loan. Lenders prefer firms that earn a profit. Hire a professional marketing agency for the purpose. You may also take advantage of the marketing platforms like PPC ads. Educate customers in your field. You can use a blog for this purpose. Build up a community around you. Be active on social media and answer queries people post. Write guest posts on other websites and attract backlinks to your website. This will declare your authority in the field. And you will remain before prospective customers for long.
Even when you have sufficient funds, do not ever ignore the potential of an MSME loan. Financial emergencies can happen at any time.
1. Does any delay in the payment cycle affect a business’s credit score?
Yes, it is known that any delay in the payment cycle by the applicant creates a massive impact on the applicant’s relationship with the lender as well as the credit score of their business which then impacts the loan approval for the applicant.
2. What is to be kept in mind while building a repayment plan?
It sure is vital to make sure one has a repayment plan and should be made sure to follow and stick to that particular repayment plan. A few things to keep in mind regarding building a repayment plan is to have some sort of clarity about current or existing expenses, and once that is done, it must be the right time to build a repayment plan.
3. Are MSME Tenures lower than other business loan tenures
Yes, MSME Tenures are known to be lower as compared to other various business loan tenures, which in turn helps manage cashflow challenges quicker.
4. Can MSME Loans be taken as Business Loans for startups
Yes, it is known that an MSME Loan can be purchased as a Business loan for startup businesses.
5. How vital is an MSME Loan to a business owner
It is said that an MSME Loan is given to those business owners who have the ability to handle overhead expenses in order to maintain the business.
6. Is an MSME Loan a great choice for young and fresh entrepreneurs
Yes, an MSME Loan is proven to be a great choice for young and fresh entrepreneurs coming with their own businesses forward. New businesses generally need a kickstart, which an MSME Loan provides to its purchasers.
7. Do you need collateral to back up your loan application
No, having collateral to back up your loan application is not necessary.
8. What are a few things to keep in mind when applying for an MSME Loan
A few points to keep in mind while applying for an MSME Loan are to check your loan eligibility, have all documents ready, make sure to know the purpose of the loan you are taking, make sure you know what your optimum loan amount is, and finally make sure you have a foolproof repayment plan.
9. Is an MSME Loan better than business loans
Yes, an MSME Loan is known to be better as compared to business loans, especially for women and young Entrepreneurs.
10. What documents are important for the MSME Loan application
Documents vital to carry and have in hand to apply for MSME loans are KYC Documents, Business Documents, and Licenses.