Micro, small, and medium-sized businesses (MSMEs) are the economic growth drivers in India. The rapid economic growth India has experienced over the past few years is largely due to these businesses. According to data from the Central Government, India has roughly 6.3 crore MSMEs. Despite playing a crucial role in the country’s sustainable development, these MSMEs face numerous threats and obstacles to their survival and expansion.
Because of this, the majority of them need help accessing newer infrastructure and technology and are stuck in their current microcycle, which accounts for about 30% of India’s GDP (GDP).
What are MSME loans?
Start-ups, small business owners, female entrepreneurs, and medium-sized businesses can all apply for MSME loans, a particular kind of unsecured loan. These could include, among many others, a Kirana store, a department store, a salon, a restaurant, a clothing store, a stationery store, a small manufacturing business, and a hardware store.
Importance of MSME loans for small businesses
One of the largest contributors to India’s overall economic and social development is the MSME sector. However, a lack of financing options may dampen their enthusiasm and stunt their development. 80% of MSMEs in India do not have access to formal business credit, according to a report by the Association of Certified Chartered Accountants in India (ACCAI).
An MSME business loan is essential for small business owners. It can assist them in surviving the challenging business cycles and maintaining their effectiveness and productivity. Additionally, it offers them financial support so they can carry on with their regular business operations without interruption. There are numerous additional factors that make MSME loans essential for Indian small business owners. Let’s look at them now:
1. They are easily accessible
The fact that MSME business loans are simple to obtain is one of their most notable benefits. Small businesses can access an MSME loan in a number of ways, as was already mentioned. To apply for credit under an MSME loan, they could go to a traditional bank, an NBFC, or a government-appointed nodal agency and financial institution. The fact that MSME loans are typically an unsecured form of financing means that lenders typically do not require any security or collateral in exchange for making these loans.
2. They are quickly distributed
Lenders typically disburse MSME loans very quickly. Lenders typically don’t delay the disbursement of MSME loans for more than a week. Some lenders even pay them out in one or two days. For instance, one can access money in just 59 minutes with the government’s “MSME Loan in 59 minutes” program. This occurs as a result of MSME loans being collateral-free and not requiring a drawn-out verification and inspection process. Additionally, MSME loans have very straightforward eligibility requirements and documentation requirements, which aid lenders in expediting loan disbursement.
3. These loans are most appropriate for short-term needs.
Small businesses have a range of long-term and short-term financial needs. Long-term needs might be business space expansion or renovation, technology and equipment upgrades, etc. Typical short-term needs include addressing working capital shortages, paying employees’ wages, obtaining raw materials, etc.
In contrast to long-term needs, which necessitate significant working capital, MSME loans make it simple for business owners to meet their immediate needs. These loans are ideal for meeting the short-term needs of small businesses because of their shorter terms, Flexi loan limit, and flexible repayment options.
4. Reasonable interest rates
Every cent matters in a cutthroat business environment. Business owners are better equipped to take risks and profit the more money they have in their pockets. MSME loans are intended to make financing available and affordable for small business owners by offering a competitive MSME loan interest rate. This guarantees that they can carry out their plans for business expansion without worrying about having to pay back a high-interest loan.
5. Owners maintain full control over their company.
Another advantage of MSME loans is that they let small business owners maintain sole control over their enterprises. They might have to give up a significant portion of their equity ownership in their venture if they try to raise money using alternative strategies, like angel investors and venture capitalists. With MSME loans, the situation is different. Following the issuance of MSME loans, lenders make no attempt to interfere with business operations. They only concern themselves with timely loan repayment.
Small business owners can grow and expand their companies with the help of an MSME loan. MSME loans can assist small businesses in addressing their precise. Needs at various stages of their growth thanks to features like quick disbursal, flexible repayment terms, and low-interest rates.
MSMEs (Micro, Small, and Medium Enterprises) are a specific category of businesses with annual sales that fall under a certain threshold.