Jan 17, 2023
The term ‘loan’ has evolved over the years. It has aided several individuals and enterprises to fulfil their financial needs and requirements. Earlier, the financial sector was majorly led by the banks, especially the government banks. Gradually, we saw the introduction of private banks and new-age NBFCs. These major changes have motivated entrepreneurs to opt for Business Loans and nurture their businesses. MSME Business Loan is one of the most preferred loans for businesses who are looking for financial aid during their initial days. MSMEs operate on thin quantum of capital compared to big MNCs. Hence, there could be a recurrent requirement for funds to meet their day-to-day needs.
Before understanding the role of MSME Business Loans in Business expansion and growth, let us dive into the concept of MSMEs.
What are MSMEs?
Micro, Small, and Medium Enterprises are entities that are involved in the production and manufacturing of goods and commodities. It includes both manufacturers as well as service providers. Below is the new classification provided by the Ministry of Micro, Small, and Medium Enterprise:
A new classification of MSMEs
Why do MSMEs Need a Business Loan?
As aforementioned, MSMEs operate on relatively less capital and constantly require funds to meet short-term financial requirements. With quick disbursement of MSME Business Loan, MSMEs can use the Business Loan for working capital needs, paying the electricity bill, paying the rent, upgrading plant and machinery, setting up new offices, hiring new employees, paying salaries of the current employees, etc.
Other than MSME Business Loan, an entrepreneur can apply for Business Loan for Working capital, Term Loan, Business Loan for Machinery or equipment, Loan under Government Schemes, etc.
So, who can apply for MSME Business Loan? Basically, there are three major criteria that one must fulfill before applying for MSME Business Loan. Firstly, you should be between the age of 24 and 65 years. Secondly, the minimum annual turnover required for a business is ?6 Lakh. Lastly, at least 2 years of business vintage (continuous operations). With a few variations, these criteria are usually similar among lenders.
What documents do you need to avail of an MSME Business Loan?
Below is the list of the documents required for an MSME Business Loan:
- KYC documents such as the Aadhaar/PAN Card of the company and similar documents of key person(s)
- Current address proof (Passport/Utility bills/Rent Agreement)?
- Bank statements for the past three months
- Business registration & address proof
Business Loan Calculator
Business Loan Calculator will help you plan your monthly EMIs. Below are the following ways you can calculate your monthly EMIs.
The below formula can be used for calculating monthly EMIs manually:
E = [P x R x (1+R) ^ N] / [(1+R) ^ (N-1)]?
Where:?
- E = EMI?
- P = Principal Loan Amount?
- R = Rate of Interest?
- N = Loan Tenure in months?
Please follow the below steps to calculate EMI using the online calculator:
?
- Step 1: Check for the EMI calculator on the lender’s official website.
- Step 2: Update the information such as loan amount, interest rate, and tenure.??
- Step 3: EMI amount will appear on the screen just by clicking the calculate button.
What are the Steps to Apply for an MSME Business Loan?
To apply for Business Loan online, you must follow the below-mentioned process:
- Step 1: Search for MSME Business Loan on the lender’s official website
- Step 2: Fill out the loan application form and select the button ‘Apply Now’
- Step 3: Fill in the basic details
- Step 4: Wait for your assessment and verification of the application
- Step 5: After successful loan approval, you will receive confirmation
- Step 6: Lastly, you will get approval from the lender and the loan will be disbursed