India has begun to set up rules and procedures to draw investors from various nations in order to promote itself as a viable market in the global economy. Micro, small, and medium-sized enterprises require assistance to realize their full potential as a vital source of employment for many.
Given that India is renowned for its small enterprises and creative industries, supporting the MSME sector can only increase the country’s GDP. In an effort to boost the MSME sector, the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006, was passed. Government agencies must help the MSME sector, whether it is in manufacturing or services, expand and innovate.
What is an MSME loan?
The Indian government has long sought to improve the small- and medium-sized industries in the nation. The MSME loan is a type of aid that these businesses receive. It was established by the Government of India and the RBI in an effort to support micro, small, and medium business enterprises. This rather simple loan programme, which has the extra benefit of being an unsecured loan, ensures support for entrepreneurs in terms of finances, infrastructure, and other areas. With the proper paperwork and application process, an MSME company loan can be obtained for any purpose, including business expansion, establishment, or expense reimbursement.
Points to consider before applying for business loan
Credit score
For the business loan to be approved, your credit score is essential. The likelihood of obtaining a loan increases with credit score. The conditions and interest rate of your loan are also determined by your credit score. If your company has a good credit score and credit history, lenders will provide greater financing rates. Additionally, the loan’s terms will be improved. Therefore, before requesting a business loan, raise your company’s credit score.
Know all about your business
You must understand every aspect of your business in order to obtain the right loan amount and utilize the loan effectively. This includes the business’ function, present financial situation, available credit alternatives, if you need the loan or whether you can raise money from investors, etc. You can obtain an appropriate business loan for your MSME by conducting a study around these factors.
Business must have complete record of financial report
Inadequate information and a lack of pertinent papers about the financial health of the business are two reasons why loan approvals are delayed or denied. We have the CIBIL rank, company credit report (CCR), audited financial accounts, and the GST report to solve this issue.
The business’s credit history and creditworthiness are documented in the corporate credit report.
The Cibil Rank provides a one-digit summary of the credit report. It is a number between 1 and 10, with 1 denoting the highest possible rank. A rank between 1 and 4 typically guarantees greater possibilities of receiving the loan.
Your sales, purchases, tax collected on sales, and tax paid on purchases are all listed in the GST report. Maintaining a solid GST report will hasten the loan approval procedure because banks trust this source.
The lender can determine how effectively the business has been handled financially by using audited financial statements.
GST and other statutory registrations
Lenders are willing to extend a line of credit to your company if it has obtained GST and other regulatory framework registration. These registrations offer your company a compliance assessment.
Bank statements
A list of all the company transactions is included in your bank statement. It tracks your liabilities as well as the real revenue that comes into the company through sales. Many lending institutions are assessing the ability of MSMEs to repay their loans by utilizing the power of advanced technologies. Therefore, they base their loan offers on this technological evaluation of your bank account.
Profitability
Since profitable MSMEs have more readily available funds to repay the loan, lending institutions give money to them more readily.
Contact the existing banker for the loan
Because he has instantaneous, verifiable information about your transactions and bank account, it is a smart idea to contact your current banker for a business loan. Therefore, loan approval will be simpler.
Longevity of the business
Being in business for a long time makes getting a loan simple. Longevity in business is ensured through adapting to changing client wants, using growth plans to develop the business, responding to market changes, fending off competition from rival products, and other factors. This longevity makes it simpler to obtain loans because lenders take into account business continuity when determining your ability to repay them.
Make realistic projections about business
The lender should be given a credible projection of your company’s future goals. This is one of the criteria used by lenders to determine a borrower’s ability to repay.
Conclusion
These are a few things MSMEs should be aware of before requesting a business loan. In addition to them, good credit conduct will hasten the loan disbursement process. Even though these are some of the things to bear in mind, good credit behavior is crucial.
