Synopsis: In today’s article, we will be discussing how MSME loans are progressively being looked at favorably by small businesses for funding their capital needs due to the customization and flexibility in terms afforded by such loans. 

Micro, small, and medium enterprises (MSMEs) are the growth engines that drive the economy. Totaling 6.3 crore units, MSMEs contribute almost 30% to India’s GDP and employ 11 crore people. MSMEs exported nearly $190 billion worth of goods in FY22, a surge of over 30% from the COVID-hit FY21.

Yet, despite the significant contributions made by small businesses to the Indian economy, they continue to face constraints in accessing finance. MSMEs are reeling under the pressure of unavailability of adequate and timely credit, lack of collateral, and lack of sufficient support during the rehabilitation of sick enterprises. This was more than evident during the pandemic. Indeed, a recently published SME Report 2022 has stated how MSMEs have lost over 3% of their market share due to the pandemic.

While the government has been introducing several schemes to improve funds accessibility for small businesses, huge credit gaps remain. Many financial companies, including Protium, are now stepping into the lending space by offering MSME loans to small businesses to enable them to meet their capital requirements.

What is an MSME Loan?

An MSME loan is a personalized financial loan that small businesses can avail of to fund their capital needs. MSMEs typically need funds for expanding operations, purchasing new equipment, or for meeting day-to-day working capital expenses. MSME loans are generally unsecured, i.e., such loans do not require any pledge or collateral.

MSME loans can typically be sourced from banks, NBFCS, FinTech companies, and even the government. For instance, under government schemes like the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE), lending institutions have been sanctioning MSME loans without the need for collateral. This, thus, facilitates the flow of credit to the MSME sector.

How are MSME Loans Different from Other Business Loans?

Unlike business loans that have a pre-defined end-use, MSME loans can be availed for a plethora of purposes. Additionally, they are customized to suit the borrower’s requirements. Hence, MSME loans enable small businesses to achieve the following goals:

• Undertake technological upgradation of the business, thus bringing in more efficiency and effectiveness in the operations.
• Acquire new assets to expand and further develop the business.
• Meet the daily operational expenses of the business.
• Successful repayments create a credit history for the borrower, thus enabling them to get loans at lower interest rates in the future. Such credit history also enables MSMEs to refinance their loans when the policy environment becomes more favorable.

How are MSME Loans a Good Fit for Your Business?

MSME loans are increasingly becoming a popular financing solution for small businesses. We outline below some of the reasons for preferring MSME loans over other financing options. 

1) Ideal for Meeting Huge Capital Expenditures

An MSME loan can be sought by businesses for all their needs ranging from working capital requirements to funding big CapEx plans. The lending institutions offer high-value MSME loans without any requirements for collateral with easy-to-meet eligibility criteria. 

For instance, Protium offers collateral-free MSME loans up to Rs. 5 crores at competitive interest rates. Such loans are without any collateral requirements and do not even require any credit history.

2) Short Processing Time

With the embedding of digitalization in lending processes, the entire loan disbursal process cycle is being automated and shortened. As a result, financing companies can sanction loans in as little time as one week. This is unlike traditional banks, whose processing times can extend over months. Hence, applying for an MSME loan makes more sense when time is of the essence, as is usually the case with emergencies or contingency events. 

Most lending institutions have now created seamless processes, which allow you to apply for an MSME loan online. Such digital processes enable businesses to easily track the status of their loan application through their smartphone or a web portal. At Protium, we provide end-to-end digital processing and disbursement of MSME loans within 3 days.

3) Attractive Interest Rates 

The most important criterion for comparing different lenders is the interest rate. A very high-interest rate will force small businesses to put off their expansion plans as new projects are likely to be unviable at such rates. This is usually the case with banks, as they are mandated to benchmark their loans to some external benchmark rate that doesn’t fall below the policy rates. Then, the banks will further add a premium to account for higher risks faced by small businesses.

Consequently, many MSMEs are priced out of competition for their funding needs. That’s where an MSME loan comes to their rescue. MSME loans, such as the ones by Protium, are offered at attractive interest rates, which are well suited for small businesses. This is because we have in-built proprietary models that source data from various sources to build a holistic risk profile of the business. This allows us to charge lower interest rates for identical loan amounts.

4) Flexible Terms & Conditions (T&C)

MSME loans offered by finance companies are usually tailored to a business’ requirements. Small businesses have the option to negotiate for flexible repayment tenures while availing of an MSME loan. Since an economy undergoes various business cycles, which directly impact the growth and profitability of small businesses, such convenience in terms becomes very crucial for the survival of the business. 

Additionally, some lenders also offer flexible interest rates on MSME loans. This means that a business is liable to make interest payments only on the amount which is withdrawn and not on the entire sanctioned loan limit. Lenders may also offer the provision to foreclose your loan without paying any additional charges.

5) Control Retention

Even after availing of an MSME loan, the borrower continues to retain ownership and control of the business. This would not be possible if the applicant had instead sourced funds from a VC fund. 

Let Protium Fuel Your Business Growth

MSME loans are an excellent source of funding for your business if you value control retention and desire flexible terms and conditions.

Minimal documentation, no credit history requirements, quick disbursal within 3 days, and easy repayment options make an MSME loan from Protium the ideal choice for your business. Apply at Protium to avail of an MSME loan.