Are MSME Loans a Boon or a Curse for India?

For any start-up as well as an established venture, the requirement of funds remains constant to maintain a stable cashflow. Every business organization seeks MSME loans to meet such monetary demands that arise throughout the business operations. It is essential to know what financial benefits such companies reap by opting for an MSME business loan.

Micro, Small and Medium Enterprises (MSME)

Based on their definition by the Government of India, MSME are the Enterprises engaged in the manufacture, production, processing or preservation of goods & services as specified:

  • Micro – Investment of up to ₹ 1 crore and turnover of up to ₹ 5 crores
  • Small – Investment of ₹ 1 crore – ₹ 10 crores and turnover of ₹ 5 crores – ₹ 50 crores
  • Medium – Investment of ₹ 10 crore – ₹ 50 crores and turnover of ₹ 50 crores – ₹ 250 crores

MSME business loans are definitely a huge boost and boon for businesses in India. These are financial lending agreements made by the owner(s) of a venture with a bank or a financial institution. MSME business loans are lent at low rates of interest and monthly payments are fixed. It allows the owner to bring in more funds for the expenses and expansion. Business loans cater to a business’s capital requirements and operating costs as well.

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Types of MSME Business Loans that can be profitable

MSME business loans are of several types depending on the purpose they serve:

  1. Business Term Loan
  2. SBA Loan – MSME Business Administration
  3. Equipment Financing
  4. Merchant Cash Advance – More like an overdraft facility
  5. Invoice Factoring
  6. Invoice Financing
  7. Business Credit Card
  8. Microloans

MSME Business Loans are of 3 types based on their valuations:

  • Overdraft
  • Working Capital Loan
  • Term Loan

Who can apply for MSME Loans?

The types of ventures that can apply for MSME Loans are:

  • Sole Proprietorships
  • Partnerships
  • Private Limited Companies

See: How to Register an LLC in India?

Why MSME Loans are a Boon for India?

MSMEs or organizations require funding at several phases of their functioning, such as while initiating a new project, buying equipment, working on technology, expanding operations and marketing strategies, or recovering from losses. Businessmen need to make optimal use of the available resources in every possible way. Out of the many ways that you can raise capital for your new or existing firm, one of the most suitable options is to apply for an MSME business loan.

MSMEs benefit from the following thus contributing to the holistic growth and development of the country:

1. Promotes new ventures and Startups in India

Entrepreneurs need extra capital and funds to perform several functions to start a new venture. His savings may not be enough for investment purposes and he may have to apply for an MSME loan to fulfil integral business functions and expenses like creating and applying a business plan, research expenses, borrowing costs, insurance, license, and permit fees, technological expenses, equipment and supplies, advertising and promotion, employee expenses, post-opening costs like advertising and promotion, marketing and customer service

2. Technological Development

It is imperative in this age of digital technology to create an effective website for an ecommerce business and regularly update and maintain it. This requires professionals and thus more money. Eventually, it also increases the number of customers that visit the website and creates awareness as a marketing strategy.

3. Business Expansion

To grow and expand, every organization needs to expand its range of products and buy better equipment and machinery for the same. Thus, for purposes like stock purchases, fulfilling manufacturing costs, and making the product, a business venture may require extra funds.

4. Infrastructural Development

Organizations need to offer seamless services to their customers and for that, they need an efficient infrastructure. This includes creating and enhancing storage facilities, payment gateways, delivery channels, safety and security of employees and data, etc. For this, an MSME business loan can be applied for.

5. Covers Working capital or Stocks

A huge amount of investment is required as working capital and to cover stock to grow businesses. An MSME loan can be helpful in such cases.

6. Finance Restructuring

An MSME business loan can save you a lot of time, effort, and inconvenience by consolidating all other existing loans into one so that you don’t have to track too many debts.

7. Employment

Employees can change the future of a company and so you need extra finances to hire, train and sustain professional staff.

8. Marketing and Promotion

Finance should be available to establish visibility in the online and offline markets. Pouring more money means better promotions which leads to beneficial and profitable businesses.

9. Economic Impact and Overall Growth of India

While the MSME industry will grow and develop by obtaining finance, it will eventually result in holistic development, employment, and enhancing the GDP of India. The economic impact of it all is huge and thus the benefits will be reaped by the whole country.

Benefits of Acquiring an MSME Loan

MSME loans help your business in a myriad of ways. Let us look into a few such financial benefits that an MSME business loan offer:

1. Collateral-free

Business loans do not demand any income or collateral documents from the borrower as a hard and fast rule. For an MSME-scale business start-up, this will lend a helping hand in meeting the business requirements and sustain the progress simultaneously.

2. Ease of Access

The amount to be paid as the monthly instalments can be raised or lowered depending upon the borrower’s accessibility to funds or monthly profits.

3. Convenience

As per their convenience, lenders offer a variety of repayment options. Repayment can be planned according to the monthly business cashflows of the venture.

4. Flexibility

Loans can be availed based upon the borrower’s business goals. Loans are lent for short-term and long-term goals as well.

5. These are Short-term Loans

Businesses can expand their business and sustain the cash flow, meeting their requirements to fill a short-term financial gap. Flexible loan options are provided by Banks depending on the size and turnover of the business.

6. Diversifying Product Range

Business loans can be availed even for stock management, manufacturing costs, and extending the product and service line. To grow the business, one needs to expand the range of products that the company sells. This is a strategy adopted by many business firms to grow their business through various ways of marketing a product or improvising the existing products and services by adding certain salient yet unique features.

7. Competitive Interest Rates

Business loans are offered at very nominal processing fees and a competitive interest rate. They are also available to common people with absolutely no hidden charges. You can retrieve your free credit report to negotiate on the applied rates of interest if the organization or businessman has a credible credit score.

8. Hassle-free Application Process

For MSME ventures and start-ups, the application process is very simple and involves only the submission of the business plan inclusive of the estimated start-up and managerial costs. If the verification committee feels that the plan is viable, feasible, and practicable, the loan is sanctioned.

9. Tax Relief

MSME loans are granted and acquired at lower rates of interest.    Under the section of Income Tax Acts, banks provide tax benefits to businesses. The profit percentage from the loan is exempted from tax payment.

10. Improve Business Credit

Availing such business loans enables organizations to improve their business credit which in turn increases the cash flow of the business.

Conclusion

Thus, MSME business loans offer a plethora of benefits to both amateur and experienced businesses, to make amendments to their business journey. Eventually, it all comes down to the overall economic growth of India.


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