Do you run a small business? You require positive cash flow to keep your business growing. As you operate your business, you will face uncertainties at some point in time. You could be faced with increasing expenses or a surge in demand and no extra cash to continue with production. Delayed payment is another challenge you’ll face when running Micro, Small & Medium Enterprises (MSME).
In business, challenges are expected. However, you should not close your business due to cash challenges. As a solution, you can get an MSME Business Loan to manage cash flow or purchase equipment. You can also buy raw materials, maintain inventory and pay workers using the loan.
When applying for an MSME loan, you don’t need collateral. You can get the loan if your business is registered, and you have the required documents. Favourable interest rates and flexible repayment tenure are other benefits you get with an MSME loan.
However, you’ll have to check several factors before submitting your loan application.
Most Essential Things You Should Keep in Mind During MSME Loan Application
You should check if you qualify for an MSME business loan before applying. Go online, search the available loan providers and check their lending conditions. Financial institutions and corporates use different eligibility criteria. So, you must check your eligibility before filling out the application form.
A credit score is among the factors your loan provider checks to approve or reject your loan application. You should have a good credit score to get an MSME loan at a lower interest rate. The credit score ranges from 300-900.
Generally, you can qualify for a loan with a low credit score. However, you’ll pay a higher interest rate than someone with an impressive credit score. A low score is a sign of higher risk, and many NBFCs are cautious with low credit score applicants.
Clix Capital, the leading NBFC accepts a CMR score of up to 6 and CIBIL score of 700 & above for business loans. To be aware, get your credit score report from a credit bureau. If your score isn’t good enough, you can work to improve it. Pay existing bills, make your loan repayment on time and apply for credit score error correction if you have any.
All these actions help to raise your credit score and, in turn, your creditworthiness.
Market and the Interest Rates
You could be under pressure to get a small Business Loan. However, you should not settle for the highest interest rate—all NBFCs in the market charge different interest rates on their loans.
So, before applying for an MSME Business Loan, look for a loan provider with affordable interest rates. Saving even a small percent of the cost of borrowing can greatly affect your business growth. You can do interest rate research to find the most suitable loan provider.
Also, check the track record of the loan provider you finalise to be assured of the terms and conditions.
Know-your-customer (KYC) document will be the next requirement after meeting eligibility criteria. MSME loan providers will want proof of your identity and address. Some documents you can provide as evidence include Voter ID, PAN, Passport, or Aadhaar Card.
Business documents are also essential when applying for an MSME loan for a new business. You can submit account statements, utility bills, or income tax returns. A business PAN Card is also acceptable.
Business documents help determine whether your business is worth the loan. Your loan provider wants to be sure that your business can generate income to repay the loan before approval.
MSME loan providers offer loans to legal businesses. Before your loan is approved, you should provide licenses related to your business as proof that you operate legally. Ensure you also give the Udyam registration certificate, which is the identification number for MSME.
You can get the certificate from the Ministry of MSME if you don’t have one.
Figure out Your Repayment Plan
Avoid taking a Business Loan without the intention to pay. Failure to repay will damage your reputation and creditworthiness. Make sure you build a solid repayment plan and stick to it when you get the loan.
When running an MSME business, apply for a loan with flexible repayment. Taking a loan with a longer repayment period reduces the repayment pressure if your business doesn’t do well.
A long tenure Business Loan means your equated monthly instalment (EMI) will be small; hence you can afford to repay. However, if your business enjoys good growth and you can afford to repay higher EMIs, sign up for a Business Loan with a short tenure to reduce the cost of your loan.
If you get a small Business Loan with a 15-year repayment period, you pay more interest than a loan with five years tenure. You should consider a loan tenure that saves you cost.
When you avail of a long-tenure loan, say 15 years, and your business does extremely well, you can prepay your loan to reduce the payable interest.
Interest rate charges are not the only cost you incur to get a small business loan. Depending on where you apply for the loan, you may be required to pay the processing fee.
Some NBFCs will also charge a prepayment fee when seeking to clear your loan before the end of the loan tenure. Late loan repayment may lead to extra charges.
Make sure you apply for an MSME Business Loan from an NBFC with small or no added charges to reduce the cost of your loan.
Reasons Why You Should Get MSME Loan for New Business from Clix Capital
Clix Capital is amongst the most reliable NBFCs for Business Loans. You can get different Business Loans, whether a sole proprietorship, partnership firm or private limited company.
Check out the reasons why you should choose Clix Capital for all your Business Loan:
- Faster loan processing
- Sufficient loan amount, up to 50 lakhs
- Flexible loan repayment period of up to 48 months
- Collateral-free loans
- Minimal documentation
- No limitation on how to spend the amount borrowed
MSME loans are a great idea whether you’re a small business looking to strengthen your presence or an established business seeking to expand your presence. Small Business Loan providers have easy-to-meet eligibility criteria to access their loans—no collateral is required during loan application. Therefore, companies don’t risk assets. Once the loan is availed, you can use the loan amount for any business purpose.