By : Sanya Oberoi

MSME loans are unsecured loans that most business owners borrow from lending institutions to meet their business-related expenses. With shorter repayment periods and flexible tenure options, they are more flexible than conventional business loans that require extensive evidence of a firm’s financial viability.

Businesses with good economic performance can avail of the MSME loan benefits to fund their regular expenses or plan growth or expansion.

In this article, we present a beginner’s guide to an SME/MSME loan that can be a firm’s lifeline to finances.

What is an SME/MSME Loan?

A Small business loan is a commercial funding option that business owners can borrow from online or offline lending institutions. Firm owners can use these funds to cover their business’s operating costs, grow their horizons, build working capital, or make big purchases like vehicles, equipment, machinery, or real estate.

How Does a Small Business Loan Work?

SME loans provide firm owners with financing as a lump-sum payment. In return for this funding, the business owner agrees to repay the amount over the selected term, along with the applicable business loan interest rate. Depending on the loan tenure, the borrower repays the loan in monthly instalments until full debt clearance.

Additionally, MSME loans are unsecured. While secured loans require collateral to back the loan, unsecured loans do not require collateral, making them a risk-free borrowing option. By agreeing to the loan offer, the borrowers typically sign an agreement to accept the repayment liability as promised.

Why Does a Company Need an SME Loan?

Small and medium-sized enterprises often do not have access to the financial resources that established businesses may have. Yet, MSMEs have ample opportunities to grow. For instance, small grocery stores saw increased demand during the pandemic-induced lockdowns. The owners required funds to stock up their inventories to meet the increased demands and keep the store running. That is when an SME loan could benefit them, allowing them to fill inventory without waiting for the cash flow. Other than that, an MSME might need capital for various other purposes, such as everyday operations, expansion goals, etc.

Possible business loan Purposes

Borrowers can use an SME/MSME loan for various purposes. Some common business loan purposes include the following:

●       Workplace expansion or remodelling

●       Maintain regular cash flow for everyday expenses

●       Debt refinancing or consolidation

●       Inventory or equipment purchase

●       Business expansion, franchising, or acquisition

●       Advertising and marketing

●       New product or service launch

●       Build working capital

Benefits of an SME Loan

Besides its obvious benefit of providing the required capital and the fact that a firm owner can obtain it anytime they want, there are various other advantages that a borrower can enjoy. Here are the top five benefits of availing of a Small business loan:

●       Competitive Interest Rates: Numerous financial institutions provide business owners with the funding required for their business and offer them competitive interest rates. These loan providers offer SME loans at affordable business loan interest rates with no hidden costs and nominal processing charges. That is primarily the best benefit of borrowing an SME loan.

●       Easy Availability: Several NBFCs provide SME loans without any collateral requirement, making them all the more convenient for entrepreneurs to apply for and obtain. Furthermore, the application procedure is online, which means aspiring borrowers do not need to leave their comfortable couch to apply for a business loan. However, the verification process requires an in-person verification of documents.

●       Flexible Repayment: Now that the competition among lending institutions has become fiercer, loan seekers expect them to offer great offers. While many of these financial services are backed by government schemes, one can avail them at competitive interest rates and favourable terms and conditions. Those who wish to expand or explore may get customised repayment terms suitable for their repayment capacity. Use a business loan EMI calculator to opt for budget-friendly EMIs and enjoy the maximum benefits with these loans.

●       Fast and Easy Disbursal: Since SME loans are unsecured, they are free from lengthy procedures involved in collateral verification and documentation. The online loan application process also helps save a lot of time and effort. Once approved, business owners can get the necessary funds in their accounts without hassle. This is quite beneficial for entrepreneurs who may need capital for an urgent expense or a planned expansion.

●       Helps Business Growth: Once the finances are sorted, the business owners can focus on their work and productivity. They can expand and grow their business the way they want without any financial worries. A lack of funds will not let them hold back from leveraging the best business opportunities.

How to Apply for an SME/MSME Loan?

A loan seeker can apply on the NBFC's official website. These are the steps to follow:

●       Go to the NBFC’s website using your smartphone or laptop

●       Select Unsecured business loan on the home page

●       Enter your phone number and click ‘Apply Now’

●       Submit the details like name, email, pin code, and the required amount along with the OTP received

●       You'll get a call from the NBFC’s representative for proceedings

The representative will set up an appropriate time for the in-person verification of documents. Once approved, the applicant will get the loan offer with complete details. On accepting the offer, the loan amount will be disbursed to the applicant’s account within no time.

Conclusion

Getting approved for an SME/MSME loan has become much easier if the borrower performs sufficient research and knows all the available options. Regardless of the purpose for which a business owner borrows a loan, prioritising repayment is crucial so that it helps the borrower rather than hurting their venture. These loans provide the required funds in a quick period, and help grow and transform the business without hassle. Many lending institutions offer quick business loans for various purposes, such as purchasing new equipment, building working capital, etc. [GP/JS]