One-third of the total GDP contribution of India comes from the MSME sector. The MSME sector is the engine that helps our economy to grow at a rapid speed. It plays a vital role in employing a large number of both skilled and unskilled workforce.
In the last few years, the government has also acknowledged the contribution made by the MSME and to provide the necessary boost to the sector, have come up with many schemes that can help these sectors to get necessary financial aid which can be utilized for various purposes such as purchasing stocks, purchasing machines, working capital needs, business expansion etc.
What is MSME Loan?
“Small and Medium Enterprise” is the MSME full form. In a simple language, MSME Loan is a business loan provided to the entrepreneurs indulged in the MSME sector provided quickly in a hassle-free manner at a lower rate of interest for a fixed period of time which can be used to cater to the specific business need.
Why is the MSME Loan is getting popular?
The MSME Loan helps the MSME sector grow their business and helps manage the cashflows when the sales are low or the receivables are stuck at the vendor end and the fund is required to cater to the current needs of the customer.
The major reasons for the popularity of an MSME Loan are :
- Gets processed quickly – Getting a business loan from the bank was a tedious process, and the time between the loan application and the loan gets sanctioned was wide. But due to the advent of technology-enabled fintech companies and NBFCs, the process has become hassle-free and quick on digital platforms like the website or mobile app and if the borrower fits the eligibility criteria the loan gets disbursed within 10 days.
- Minimal and uncomplicated documents – Since the fintech companies have new-age software that can check the borrower’s creditworthiness from various sources, the borrowers are not ordered to provide a huge chunk of documents for an MSME Loan. The documents are restricted to KYC, properties and banking that can be uploaded digitally by logging through the website or the mobile app.
- Loan tenure is flexible – the borrower gets the 2 to 3 option of the repayment period that the borrower can select to pay back the loans, which also ease out the loan pressure if the borrower chooses a longer tenure. For instance, Ziploan is one such tech-enabled NBFC that provides business loans up to 7.5 lakhs for 12 months, 24 months, or 36 months.
- Competitive Interest rates – Now the MSME Loan is provided at a competitive rate from both private and public players. Those borrowers whose CIBIL score is high can get a business loan from fintech companies and NBFCs at a lower rate of interest, hence the MSMEs do not have to waste time for various sources to get a business loan at a competitive rate
- Government Schemes – to help the MSME sector grow the government has introduced many MSME schemes so that the borrowers have easy access to the business loan. MSMEs in the Manufacturing, Trading and services are the primary beneficiaries of MSME loan Some of the schemes are –
CGTMSE – Credit Guarantee Fund Trust for Micro and Small Enterprise was introduced so that the collateral free business loan is available to the small and medium enterprises
Udyog Aadhar Memorandum – the benefit of getting registered to the Udyog Aadhar with the Aadhar card is the ease of availing the credit and subsidies from the government
Schemes for Women Entrepreneurs – This is the scheme provided to the female counterparts who want to start a business. In this scheme, the government provides technical know-how, capital, training and development and counselling to the Women entrepreneurs to run the business effectively.
SHWAS and AROG schemes to tackle COVID situation – The endeavour is to provide credit facilities to those MSME who have helped the citizens of India sailing through this deadly virus by being operational at their service, providing healthcare to each and sundry.
MUDRA loan – Under this scheme, the borrower can get MSME loan from the Public Sector Banks, Regional Private Banks, Micro Finance Institutions, and Foreign banks. The loan is provided on the different stages of business vintage – start-up, and the experienced entrepreneurs.
We must understand that the MSMEs are critical to the development of our economy. It is the best solution to income inequality, poverty, unemployment, social inequality, nation-building, etc.