Business loan

5 useful tips on MSME business loans for young entrepreneurs

Dedication alone will not help you run a successful micro, small or medium business. For that, you need a stable cash flow. Without it, you will never be able to recover from an unexpected fall; unexpected increase in demand, late payment, market fluctuations, unexpected increase in the price of goods; the list can be endless. And you must have the necessary amount of money to keep your MSME business running smoothly.

The internet is full of articles on tips for selling fast, go-to-market campaign strategies, and how to market yourself well. But he rarely has any guides to offer when it comes to effective money management.

Stories of businesses paying exorbitant interest rates, turning to unrecognized lenders to meet their financial emergencies and when they had to seek informal loans; everything is now a thing of the past. Currently, if you are a young entrepreneur, all you need to do is apply for an MSME business loan.

A MSME business loan is a form of unsecured financing that financial institutions offer businesses. This helps young and new entrepreneurs to bear their various expenses related to the business. However, to qualify for this loan, your business must be a micro, small or medium-sized business.

Benefits of an MSME loan

• Easy access to financing

Unpredictability is an essential part of the Indian economy. You may have excess cash flow during peak seasons. And when demand drops, you’ll start counting every penny. In such a case, you will need financing at the earliest. Applying for an MSME business loan is a hassle-free process. And it requires minimal documentation. You will receive the necessary financing in no time.

• It is without warranty

The government becomes your guarantor when you apply and become eligible for an MSME loan. This allows lenders to lend to you without collateral.

• Flexible repayment term

An MSME business loan is designed for those with low credit scores. And you get flexible loan repayment terms. It can extend from one to five years.

You also get an affordable interest rate, pre-approved offers, and the ability to manage your financing from your lender’s official portal.

5 tips for business loans to MSMEs

To benefit from these advantages, you must ensure that you are eligible for the loan you are considering applying for. Take steps to prove your loan repayment ability to your lender. As a new entrepreneur, you may find it difficult to prove this. Make sure your finances are clear. And your business plan should contain detailed information about your finances. You also need to be realistic about your expectations. If you have a few years of service in the field, that’s fine. If not, do your best and wait patiently.

Here are five additional tips that would definitely help you in this regard:

• Why do you need the loan?

This is the first question you need to answer before even applying for an MSME business loan. You may be looking for financing to increase your company’s cash flow. Or you may be considering new acquisitions. Whatever the purpose, find the type of loan that fits in and apply for it.

You also need to determine the term of the loan and the amount to be repaid. This deserves utmost importance as you are a new entrepreneur. Your business needs a long time to establish itself in the market. Consider all factors when applying for financing.

• Be prepared to submit collateral

If you cannot prove your ability to repay your loan, the lender may ask you to provide security. Be prepared to do this as it will increase your chances of qualifying for the loan.

• Have a good CIBIL score

Your credit score is essential to help your lender assess your loan repayment capabilities. Some companies even assess your personal credit score when reviewing your loan application. Do the following to improve your CIBIL score:

Your loan repayment history

♦ Your existing debts

♦ Type of business

♦ Credit utilization rate

• Keep all your documents handy

Keep all your documents handy. It will give the impression that you are sufficiently prepared for your new journey as an entrepreneur. Keep the following documents handy with your application form:

♦ Proof of identity

♦ Proof of address

♦ Bank statements of a few months, as mentioned in the application form

♦ Latest ITR with calculation of balance sheet, income and A/C profit and loss for the last 2 years

♦ Chase proof

You may even be required to submit documents related to sole proprietorship and related aspects.

• Seek professional assistance

If you feel that your business plan is not detailed enough, seek professional help. Hire an accountant for this purpose. If your business is well established, you may consider adding an accountant to your board. This will help ensure that your business plan is detailed enough to convince potential lenders.

Finally, make sure your bank balance is high enough. This will give the impression that you have sufficient funds to repay your loan on time. Some lenders assess your daily bank balance when reviewing loan applications.

If you’re a new entrepreneur, be kind to yourself and be patient. Grow your business before applying for an MSME loan. Lenders prefer companies that make a profit. Hire a professional marketing agency for this purpose. You can also take advantage of marketing platforms such as PPC ads. Educate customers in your field. You can use a blog for this purpose. Create a community around you. Be active on social media and respond to questions people post. Write guest posts on other websites and drive backlinks to your website. This will declare your authority in the field. And you will stay in front of potential customers for a long time.

Even when you have sufficient funds, never ignore the potential of an MSME loan. Financial emergencies can happen at any time.

FAQs

1. Does any delay in the payment cycle affect a company’s credit rating?

Yes, any delay in the payment cycle by the applicant is known to create a massive impact on the applicant’s relationship with the lender as well as their business credit rating, which then impacts loan approval for the applicant.

2. What should be kept in mind when developing a repayment plan?

It is certainly essential to ensure that one has a repayment plan and one must make sure to follow and stick to that particular repayment plan. A few things to keep in mind about developing a repayment plan is to have some sort of clarity about current or existing expenses, and once that’s done, it should be a good time to develop a repayment plan.

3. Are tenure terms for MSMEs lower than for other business loan terms

Yes, tenure terms for MSMEs are known to be lower than other business loan terms, which in turn makes it easier to deal with cash flow issues.

4. Can MSME loans be taken as business loans for startups

Yes, it is known that an MSME loan can be purchased as a business loan for start-up businesses.

5. How important is an MSME loan for a business owner

It is said that an MSME loan is given to business owners who have the ability to manage the overhead in order to maintain the business.

6. Is an MSME loan a great choice for young and new entrepreneurs

Yes, an MSME loan has proven to be an excellent choice for young and new entrepreneurs who wish to develop their own business. New businesses usually need a boost, which an MSME loan provides to its buyers.

7. Do you need collateral to support your loan application

No, having collateral to back up your loan application is not necessary.

8. What are some things to keep in mind when applying for an MSME loan

A few things to keep in mind when applying for an MSME loan are to check your eligibility for the loan, have all the documents ready, make sure you know the purpose of the loan you are taking, ensure that you know what is the optimal amount of your loan and finally make sure you have a foolproof repayment plan.

9. Is an MSME loan better than a business loan

Yes, an MSME loan is known to be better than business loans, especially for women and young entrepreneurs.

10. Which documents are important for MSME loan application

The essential documents to carry and have on hand when applying for MSME loans are KYC documents, business documents and licenses.