5 Things You Should Know Before You Avail an MSME Loan

Finance is the only medium to run a business smoothly. In developing countries like India, the government is trying to promote small businesses. Government has launched various schemes, in order toencourage small business owners to avail anMSME loanthat is now been offered by various financial lending institutions.

It has been noticed that the MSME sectorhas played a leading role in the Indian economy for overall growth. Make in India is the initiative that has changed the blueprint of the MSME sectorover the last decade.

Financial institutions like cooperative sectors, banks, and NBFCs have mainly focused on encouraging and promoting the MSME sector. Moreover, MSMEs can avail credit guarantee and approval through the CGTMSE loanas well. It’s a golden opportunity for the small and medium sizebusinesses to expand their business and generate more income, ultimately contributing to the country’s GDP.

Below are the 5 factors one should know before availing an MSME loan:

Collateral

Based on the security basis, two types of loans are offered by financial institutions. One is secured, and the other is an unsecured business loan. You have to give some collateral for getting approval for an MSME business loan in a Secured loan.

Although, there are couple of NBFCs these days like Ziploan, who offer unsecured business loan to the emerging business entrepreneurs, who cannot provide collateral to avail a business loan. Moreover, this financial institution, asks for very minimal business loan documentation.  Hence collateral is one of the very vital factor before you avail an MSME loan.

Healthy credit score

The credit score is a reflection of the repayment pattern and credibility. Nevertheless, the lending institutions always have a fair idea about the risk involved in disbursing a loan to the borrower and his/her business through the credit score. While, it always is recommended to maintain a healthy credit score which ease up the process of availing theMSME loan. In fact, some lenders like Ziploan also provide competitive business loan interest ratesand seamless services for its customers having a good credit score.

The ratio between loan and value

To run the business properly, cash flow in business should be a must. The financial institutions first analyze the cash flow in the business before providing any business loan. The interest rate varies according to the market value. Before giving a loan, the lenders generally consider a particular portion of security called the Loan to Value ratio. With the advancement of information technology, the majority of financial institutions operate the loan approval process digitally. This process saves a lot of time, and the approval process becomes much faster.

Audited financial statements

The financial statements help the lending institution to smartly assess how well the business has been managed financially overtime by the applicant. Most of the lending institution isalways inclined to sanction a business loan if thefirm has been profitable and generating consistent cash flows. Also as an applicant, one should be always keep their financial statements handy and audited and taking the required corrective actions as and when necessary to avoid repeat qualifications.

Loan tenure

It is not necessary to avail the highest permissible business loan amount. Instead, always apply only for the amount and tenure as genuinely required based on the business requirement, considering the fact that sooner or later, you have to repay the loan amount through business cash flows. Moreover, NBFCs like Ziploan gives the flexibility to choose the business loan amount and also assists in repayment of the loan amount through flexible terms and time period.

FAQs:

  1.  What are the documents required for MSME loan approval?

Certain documents like business proof, owner’s PAN card, sales and income tax return, bank statement of last 12 months are essential for MSME loan approval

  •  Why should one take an MSME loan?

MSME loan is collateral-free, the interest rate is significantly less, the approval process is easy, and minimal paperwork is required for the entire operation.

  • How to apply for an MSME loan?

MSME loan from Ziploan can be availed in 3 easy steps. Firstly, fill up the online loan application form. Second, submit all the relevant PDF document copy to complete the process. Third, get the funds in bank account within three days*.