MSME loans can be defined as secured loans offered by several lending institutions. These loans are designed to cater to meet business-related expenses of small businesses on credit. Such loans are an engine of economic growth. These credit instruments aid the equitable economic development in the country. MSME loans are sanctioned for short durations and repayment flexibility for borrowers.
The eligibility of MSME loans remains more lenient when compared to traditional business loans, which require proof of business profitability. Businesses can avail of an MSME loan even through a decent credit score.
The SME (Small and Medium Enterprise) sector is one of the most significant contributors to the country's GDP, employment generation, and even exports. However, the pandemic has hit the small business segment's growth prospects, exposing it to vulnerabilities of economic stagnation instead.
Given the effects of the corona-induced economic crisis, MSMEs are in dire need of financial assistance to move upwards on their growth curve. A business loan extended to an MSME business can help them sustain the tough times. MSME loans are the preferred credit instruments for most MSME businesses because:
Many MSME businesses struggle with seasonality constraints in demand for their product and services and other factors that contribute to fluctuations. There are times when they have surplus reserves of funds, and at other times, they find it hard to make ends meet. Sudden cash crunches can be detrimental to the business flow. An MSME business loan offers an accessible recluse when there is a need to maintain the cash flow at a small business. MSMEs benefit from the minimal documentation and instant disbursal of an MSME business loan.
Raising investments for business from angel investors and venture capitalists also means that owners have to give up a chunk of their share in their venture. Although all small businesses face financial requirements from time to time, not all business owners are open to relinquishing control over the business to the investors. MSME business loans serve as desirable instruments to address a small business's financial requirements, which wants to avert liquidation of control.
Ample cash flow in a business fortifies it to take risks and make a subsequent profit. An MSME business loan features flexible and competitive interest rates to aid businesses in their growth curve. Availing such credit instruments means a company spends the minimum amount in repayment of the loan, and a chunk of it is available to cater to other business needs.
Earlier in Feb, Union Budget 2020-2021 proposed introducing a scheme to provide subordinated debt for entrepreneurs of MSMEs. However, the unprecedented spread of the coronavirus pandemic brought the economy to a standstill. Today, most MSMEs are suffering even in the face of various relaxations to reopen business activity by the Indian government.
Stagnation in supply chains and labour problems are the two biggest deterrents for small as well as medium scale businesses in the times of the pandemic. A couple of months of the lockdown have left businesses completely cash strapped, so much so that they are struggling hard to survive.
Fund infusion is the best way to revive the cash-starved small business sector of the economy. The government's INR 3-lakh crore MSME loan guarantee scheme and INR 20,000 crore subordinated debt scheme are blessings for such businesses. As the momentum of consumption demand increases, the MSME loans growth is projected to pick up further still.
Avail customized loans for financing your business with Shriram City Union Finance's MSME loan scheme. If you are a small business struggling for easy access to funds, our MSME business loan scheme is just the right fit for you.
Shriram City Union Finance's MSME Loans can flush adequate liquidity into your business and help you make a profit even in the face of an economic downturn in the country.