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When Should We Take SMEs/MSMEs loan- [February 2023]


SMEs/MSMEs loan are a pivotal part of any economy. Supporting them through funding is crucial to help them level up from a minor business status to a fully established one. Therefore, making SME loans is significant today, Benefits of an MSME Loan.

Small businesses are an integral part of any economy. As per the Ministry of Micro, Small, and Medium Enterprises (MSME) 2019 annual report, India accounts for 6.33 crore MSMEs. Out of which, 3.31 lakh are small businesses, and 6.30 crore are micro-units. Despite such impressive numbers, many small and medium businesses find it challenging to acquire funding. To help these enterprises fulfil their needs, many financial institutions offer loans that specifically cater to their SMEs/MSMEs loan

These loans are a form of a credit facility offered to medium and small businesses to cover their working capital, growth, expansion needs, and other long-term goals. Such forms of funding can be beneficial for SMEs to function at their full potential through appropriate usage of resources via the grant. However, a big question among business owners is how to apply for an MSME loan and when. This article discusses these aspects in much detail. 

Eligibility SMEs/MSMEs Loan

Being eligible for a SMEs/MSMEs loan is the starting point and the most crucial part of the process. Since SMEs and MSMEs are mostly new businesses, the parameters are relatively straightforward to make them more accessible.

SME/MSME loan eligibility criterion includes:

  • Applicant must be a minimum of 18 years old 
  • Applicants can not be over the age of 75 years
  • Business vintage must be of a minimum of 3 years along with cash accruals for the last two years
  • Entities must be CA Certified and Audited Balance Sheets (ABS) must be provided 
  • The enterprise must be a proprietorship/ partnership/ Pvt. Ltd Companies/ limited companies

Challenges of Availing an SMEs/MSMEs Loan

There are plenty of upsides to SME and MSME loans. But, it is also essential to consider its challenges and avoid them. Doing so can expedite the process of loan disbursal. 

  • Lenders have a lack of trust when it comes to MSME loans. This is because they think these businesses have a low repayment capacity. Hence, the rules and regulations for getting this loan are much more stringent.
  • Strict rules manifest themselves in the documentation process and make it tedious for business owners. 
  • Some lenders make these loans secured. This is not possible for a business that is just starting and has limited assets. Carry out thorough research to find ones that cater to your needs.

These are just a few challenges along the way. The result of receiving funding reaps many more benefits, and they will be discussed further. 

Also Read: How to Choose Home Loan in Simple Steps

Benefits of an MSMEs Loan

Since SME and MSME business loans have a criterion that small businesses can quickly meet, they come with several benefits attached. Some of these include: 

  • Most MSME loans do not have a prepayment penalty. This means that they waive the liability on the borrower for disbursing the loan earlier than the assured tenure.  
  • MSME are affordable due to interest rates that are decided based on the scale of the business and its repayment ability. 
  • SME business loans are mostly unsecured. Meaning they do not require collateral. There is no need for evidence of property and assets. Only actual proof of business documents will suffice.
  • SME business loans have flexible repayment tenures that range from less than 1 month to 36 months. 
  • Very standard documents such as bank statements, GST details and income tax filings, which are easily accessible, are the only necessities a majority of the time.

These benefits accurately showcase how convenient it can be to take micro, small, and medium enterprise loans. It increases their chances of improving their scale and optimising their output.  

When Can an SME/MSME Loan be Availed?

Small, micro and medium enterprises mostly do not have access to well-established and large-scale business resources. Regardless, SMEs and MSMEs can grow and expand through different opportunities. Scenarios where funding is needed, is where loan requirements arise. To compete with more extensive and more successful businesses, SMEs and MSMEs might need external help to lay a solid foundation for their business to grow.

While a business loan and an MSME loan or Smart Tips to Manage Your Home Loan EMI Calculator seem to have the same aim, there are some differences between the two. Some of these differences are:

  • Business loans require much more documentation and a strong credit score
  • Business loans tend to become sanction for a particular purpose 
  • MSME loans need minimal documentation
  • SME business loans can be used for multiple purposes once sanctioned 

As seen in the distinctions between an SME business loan and a regular business loan, the goal of helping MSMEs grow is undoubtedly fulfill. 

SME business loans can help you get a jumpstart in your business venture. Start the process now and get competent interest rates, flexible repayment options and boost your business!



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