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Home » 7 Reasons Why MSME Loans Are The Best Choice For Small Business Owners

7 Reasons Why MSME Loans Are The Best Choice For Small Business Owners

msme loans for small business

If any individual wants to start a business, they usually invest their savings. But in many cases, the savings are just not enough, or they can’t risk investing all of it. In such circumstances, you can approach MSME loans to get the required funds to start any small business. 

In India, micro, small, and medium-sized businesses contribute almost a third of the country’s GDP. It also employs nearly 69% of its population. These businesses need funds to grow and prosper. In such cases, small business owners can acquire capital for further investment through a MSME loan

Also, it is one of the best ways for small business owners to avail investment as it has minimal eligibility criteria. 

What are MSME loans?

MSME (micro, small, & medium enterprise) loans are unsecured credit offered by banks and NBFCs to support small business owners. What makes these loans a more viable option is that there are no fixed loan durations. Also, the interest loan is not fixed for every business owner and differs on their profile, required loan amount, and business history. 

Why are MSME loans the best choice for small business owners?

Ease of availability

Unlike traditional loans that banking institutions provide, MSME loans are much easier to avail. Where traditional loans require property deeds, financial statements, a list of owners, partners, and more, MSME loans do not require such documentation. Basic documents such as identification, bank statements, and GST filings are usually enough to avail of the loan. 

Lower interest rates

The government introduced MSME loans to provide equal opportunities to all individuals and have lower interest rates than traditional loans. The interest rate, according to the Small Business Administration, ranges between 7.75% to 10.25%. The interest rate on your loan depends on various factors, such as your credit history profile and your business history. Even though the average interest rates on MSME loans range between 4% to 6%. 

Lower multiple taxes 

Small and medium businesses with MSME registration can avail of Direct Tax Exemption in the initial year of business. They also receive a substantial 50% subsidy while registering patents if they have a registration certificate provided by MSME. They are also eligible to avail subsidy on industrial promotion as per the government. 

Can apply for Govt based MSME loans 

Aside from NBFC institutions, you can also avail loans directly from the Indian Government. They offer multiple loans to small business startups and are pretty easy to avail. Any individual with a good business model or any small business owner with a good business history can apply for the MSME loans. 

No collateral required 

Applying for MSME loans does not require you to offer collateral and is often unsecured in most cases. There is no need to provide property papers or mortgage business assets to get approval for MSME loans. Any individual that has valid business documents is eligible to avail of the loan. 

MSME loan tenure is flexible

The MSME loan duration is much more flexible compared to traditional loans and can be decided on the comfort level of the individual or business owner. These loans are usually short-term, and the duration ranges from one month to 36 months. The repayment process is also flexible as individuals can choose weekly, bi-weekly, monthly, and bi-monthly payments. 

Prepayment or early closure charges 

In comparison to traditional loans, individuals availing of MSME loans get the benefit of waived prepayment charges. If the individual has the required funds and decides to close his/her loan before the set duration, they do not have to pay for the interest for the months remaining. Also, there is no extra cost to stop you from freeing yourself from debt. 

Closing Thoughts

The Government of India has taken many initiatives to support small business owners and ease conducting small businesses. MSME loans are one such initiative, and based on the above facts, it can be easily concluded that it’s one of the best ways to avail funds. You do not require collateral; the interest rates are low, and the eligibility criteria are much more flexible. 

The minimal paperwork and easy loan repayment options make it one of the best choices for small businesses.