• The percentage of MSME loans overdue by 90 to 720 days dropped to 2.3% in Q2 FY24, highlighting the importance of what MSMEs must do after their loan is sanctioned
• MSMEs must utilize loan proceeds strictly for their sanctioned purpose
• Ensuring timely EMI payments and a buffer for cash flow disruptions are essential to preserving creditworthiness.
• Basic financial literacy enables MSMEs to manage loans effectively and plan sustainably
• A strong credit profile improves credit scores, enables faster approvals and better loan terms in the future.
• Transparent lender relationships about business performance, challenges, and growth plans help build trust, ensuring easier access to top-up loans, restructuring, and financial advisory support.
  

The percentage of MSME loans overdue by 90 to 720 days dropped to 2.3% in Q2 FY24. This marks the lowest delinquency rate observed in the past two years, indicating responsible repayment behavior among MSMEs. 

This improvement is a positive sign, but it also highlights the importance of what MSMEs do after their loan is sanctioned. While most business owners focus on procuring the loan, post-loan management plays an equally critical role in building financial health, maintaining credibility, and ensuring long-term business success. This is possible if MSMEs follow some essential habits after getting a loan. 

1. Use the Loan for its Intended Purpose

Once a loan is approved and disbursed, it can be tempting for small businesses to use the funds for other immediate needs. But using the money exactly as planned during the loan application is one of the most important steps for long-term financial health and buyer – lender relationships.

For instance, if the loan was sanctioned for machinery purchase or to expand working capital, the funds should go strictly toward that objective. Diverting loan proceeds to cover personal expenses, pay off unrelated debts, or manage daily operations not only affects execution of the business plan but also increases the risk of repayment stress.

Lenders often track fund usage, especially in structured or term loans. Misuse of funds may lead to reduced trust, difficulties in securing future credit, or even penalties depending on the loan terms.

2. Pay EMIs on Time, Every Time

Timely payment of EMIs is the most basic and crucial habit after taking a loan. It not only helps avoid penalties but also builds a positive credit history.

Many MSMEs miss payments simply because they do not maintain a clear repayment schedule or reminders. It is important for the enterprise to know:

• The exact EMI amount,
• The due date for each cycle, and
• The preferred payment mode—whether through auto-debit, cheque, or online transfer.
  

To stay on top of repayments:

1. Set up reminders aligned with the due date to avoid delays.
2. Maintain a buffer fund equivalent to at least one or two months’ EMIs to cushion against short-term delays in case of receivables or other cash flow challenges.
3. For anticipated delays, small businesses should inform their lenders as early as possible. Many lenders are open to offering support such as EMI rescheduling, temporary moratoriums, or restructuring in genuine cases.
   

Missing payments without notice can negatively affect the MSME’s credit score and weaken the relationship with the lender. On the other hand, consistent, timely payments enhance creditworthiness and increase access to future credit at better terms.

3. Learn the Basics of Financial Management

Many small enterprises are deeply focused on running daily operations such as handling, customers, sales, among other daily tasks; often at the cost of developing financial skills. However, a basic understanding of financial concepts is essential for effective loan management. This not only helps MSMEs manage loan funds efficiently but also strengthens business planning and prepares the enterprise for future funding or investor engagement.

Some of the areas that MSMEs should be knowledgeable about are::

• Read a profit and loss (P&L) statement to understand profitability.
• Interpret a balance sheet to track assets and liabilities.
• Monitor the flow of working capital in day-to-day operations.
• Maintain and revise monthly and quarterly budgets as per business needs.
• Vigilant about repayment dues and ability to identify any hidden charges
  

If these areas are unfamiliar, it is advisable to invest time in financial education. This could include:

1. Joining RBI or SIDBI financial literacy initiatives tailored for small businesses.
2. Exploring free or affordable online courses designed specifically for entrepreneurs.
3. Adopting digital accounting tools that simplify expense tracking, billing, and report generation.
   

4. Build a Strong Credit History for Future Borrowing

A credit score is more than just a number—it is a key indicator of how reliably a business manages its debt. MSMEs that repay loans on time often avail the following benefits:

• Faster processing of future loan applications,
• Access to loans at lower interest rates, and
• Higher or more flexible credit limits over time.

This becomes especially helpful when a small business plans to scale operations. For example, after successfully repaying a smaller loan, the MSME may become eligible for a larger working capital facility or a revolving credit line to manage growing demand.

To build and maintain a healthy credit history:

1. Avoid missing EMI deadlines.
2. Prevent cheque bounces or account overdrafts that reflect poorly on repayment discipline.
3. Borrow responsibly—take only what is necessary and manageable within projected revenues.
4. Check the business’s credit report regularly on platforms such as CIBIL, CRIF High Mark, or Experian. Any errors should be corrected promptly.
   

A positive credit profile strengthens the MSME’s financial reputation and can significantly improve its ability to negotiate better loan terms in the future.

5. Maintain a Healthy Relationship with the Lender

Lenders value borrowers who are transparent, proactive, and communicative. Maintaining an open relationship with the lender helps build trust and enables faster support during critical business phases.

Most MSMEs approach their bank or NBFC only when a problem arises. Instead, it is advisable to keep the lender updated about:

• Significant developments in the business, such as revenue fluctuations or new orders,
• Planned expansions or capital investments, and
• Seasonal variations in cash flow or unexpected operational slowdowns.
  

This approach helps in two key ways: 

1. In case of any challenges, the lender is more likely to offer assistance through top-up loans, temporary relief measures, or modified repayment plans. 
2. Secondly, it builds a long-term relationship that makes future loan approvals smoother and faster.
   

Lenders also have access to schemes and financial advisory services that may benefit the enterprise—but such opportunities are often shared only with engaged and responsive borrowers.

Loans are not just about funding—they’re about using that funding wisely. And with the right habits, every MSME can set itself up for long-term success.