MSME loan come with many advantages, one of them including a government-provided subsidy. The Ministry of Micro, Small and Medium Enterprises (MSME) was established in 2007, and has since taken the initiative to give the best possible assistance and facilities to businesses in order to grow their income, cash flow, and employment resources on an individual level. Until far, the ministry has introduced over a dozen initiatives, including the well-known MUDRA, PMEGP, and Startup India.
There are several tax breaks available to businesses and start-ups falling under the MSME, including tax breaks on capital gains and a complete tax exemption for the first three years of operation. MSMEs receive funding assistance and credit guarantee money. There is also a quick legal procedure meant to assist entrepreneurs in resolving legal concerns easily. A better startup exit procedure is developed so that entrepreneurs may reap the greatest rewards possible.
MSMEs’ Purpose
- Purchasing a plot of land, constructing a factory or an industrial plant on that site.
- For the procurement of machinery and the outfitting of the facility with lab and testing resources, furnishings, and other critical components required for smooth operations.
- To meet working capital requirements such as goods, raw materials, and stock in trade.
- To keep the goods/services flowing, when you are waiting to receive a payment form one party but still need to pay creditors.
- For the purpose of company marketing and advertising.
- Expansion of the business or the introduction of a new product line.
- Aside from the aforementioned, funds are necessary for any other form of support that is not specified above but is essential for business operation.
Why are MSME loans the best solution for small business owners?
- The loan has very few eligibility requirements.
- You are also eligible to avail benefits from certain taxes.
- MSME loans from the government are accessible.
- Equal opportunity for all types of businesses; provides funding for capital expansion.
- MSME loans can be utilised to fund any type of company need.
MSME Loan Advantages
- Collateral-free Loans: A loan of up to Rs.50 lakh is often provided to enterprises, completely collateral-free.
- Speedy processing: A loan application can be processed in 24 hours, and the funds should be disbursed quickly.
- Accessibility: MSME loans feature flexible EMI alternatives since one only has to pay interest on the amount withdrawn from the loan sanction, and borrowers can withdraw as much as they wish based on their working capital requirements or other company expenditures. They also have the option of paying only the interest for a set length of time before beginning to pay the principal amount based on their profitability.
- Paperwork: The documentation and paperwork needs are simple and straightforward, with no complicated requirements.
- Pre-approved financing proposal: Businesses can also get a pre-approved loan offer based on their profitability, existence, and the type of business they are in.
- Borrowers may also track and make adjustments to their loan using an online account management option, where everything can be done practically instantaneously and online. MSME loans also have a very long term option in circumstances when the firm is still in its early stages.
Eligibility Criteria
- Before applying for an MSME loan, one must have a well-structured business strategy and be able to illustrate the problems, solutions, and go-to-market choices.
- Business registration is required whether a company is well-established or a start-up. To get any advantages or subsidies from the government of India’s initiatives, a business must be registered.
- A profit and loss statement (P&L) may be required to determine how well the firm is performing and to check loan data. This statement shows how much money was made or spent, in the event of running a business.
- 1-year ITR: Income tax returns from the previous year to see if you paid all of your taxes on time.
- Credit history: Lenders like to examine the borrowers’ history of loan repayments in order to forecast future possibilities. A solid credit history increases your chances of being approved.
- Adding a Co-Borrower will boost the application’s validity.
- If security or collateral is provided to get the loan, all appropriate paperwork must be supplied to the bank at the time of application.
- Bank statements for the previous 6-12 months are required to understand and authenticate the borrower’s account activity.
- A credible business prediction must be provided.
Documents Necessary for a Micro, Small, and Medium-Sized Enterprise Loan
In most circumstances, MSME loans are collateral-free; nevertheless, depending on the scenario and individual loan criteria, a collateral may be required. The papers listed below are necessary for a security-free loan.
- KYC papers include an Aadhar Card or PAN Card, a valid Indian passport or Voter ID Card/driving licence, and so forth.
- Utility bills, Aadhar Card or Voter ID Card, a valid Indian passport, and a Domicile Certificate are all acceptable forms of address evidence.
- Financial records include a 6-month bank account statement, income tax returns, GST reports, and a profit and loss statement.
- Business ownership paperwork include the business’s registration documentation, as well as property and agreement papers, if relevant.
Furthermore, the business owner must be under the age of 70 at the time of loan maturity and must have been in operation for the previous three years. Some of these requirements, however, may not be the same for all lenders, and some may be ready to modify a bit based on a variety of circumstances and final loan terms and conditions.
Conclusion
Government loans for small businesses are one of several efforts undertaken by the Government of India to increase the ease of conducting business in the country. In 2018, India was placed 77th in the World Bank Matrix for ease of doing business.
The Indian government has been working hard to stimulate entrepreneurship and to establish transnational startup corridors, connecting India and the rest of the globe. Startup India and Mudra Yojana have motivated a lot of MSMEs to work hard and take advantage of the benefits given by these initiatives.
The government’s attempts to provide business loans to startups and MSMEs, even at the micro-level, would undoubtedly help entrepreneurs and company owners of small and medium-sized firms expand and thrive.