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The micro, small, and medium-sized enterprises (MSMEs) are the growth engines of the Indian economy. These businesses have contributed immensely towards India’s rapid economic growth during the past few years. As per the Central Government’s data, there are approximately 12 crore MSMEs in India, contributing to around 29.2% of India’s Gross Domestic Product (GDP).
Read on to explore the significance of MSME loans and their profound impact on fostering entrepreneurship, especially for small business owners.
MSME or Micro, Small and Medium-sized enterprises are primarily engaged in the production, manufacturing, and processing of goods and services. This classification was established by the central government in 2006 under the Micro, Small & Medium Enterprises Development Act.
MSMEs form a crucial part of the supply chain and contribute around 40% to India’s overall exports. They also play an integral role in generating employment in the country. They employ approximately 11 Crore people from various parts of India. Interestingly, they have been equally responsible for the country’s rural development as well. More than half of the MSMEs are based in rural areas of India.
However, despite being an integral part of India’s development, these MSMEs face enormous threats and challenges to their survival and growth. One of the significant challenges they face is the lack of sufficient financing. Due to this, most of them cannot access newer technology and infrastructure and, therefore, remain in their micro cycle only. As per a report, MSMEs in India suffer from low productivity, limited efficiency, and inadequate workforce.
The MSME sector is one of the most significant contributors to India’s overall economic and social development. However, the lack of access to financing avenues can dampen their spirit and prevent their growth. As per a report by the Association of Certified Chartered Accountants in India (ACCAI), 80% of MSMEs in India lack access to formal business credit. The decline in economic activities during the COVID-19 lockdowns escalated this problem even further.
Therefore, an MSME Loan becomes vital for small business owners. Understanding the importance of loans in business is crucial as it can help MSMEs sustain through difficult business cycles. It also allows them to maintain their productivity and efficiency. Besides, it also provides them with financial assistance to continue their day-to-day business activities without any hassle.
For an MSME, the importance of financial assistance is often highlighted. There are several other reasons why MSME Loans are crucial for small business owners in India. Let’s have a look at them to fully understand the importance of MSME loans.
Also Read: 5 Easy Ways To Fast Pay Off Your Business Loan Efficiently
As per the Ministry of MSMEs, these enterprises contribute about 30% to the GDP and employ roughly around 11 crore individuals. Compared to larger industries, MSMEs have the potential to create more jobs due to their lower capital requirements and higher employment rates.
There are numerous examples of MSMEs that started as a micro business and emerged as large corporations employing millions. For example, the AMUL Dairy Cooperative in Gujarat, which began as a small cooperative in the 1940s, has evolved into a thriving MSME employing millions of people.
There are several obstacles that MSMEs face when it comes to job creation, such as lack of funding opportunities, outdated technology, shortage of skilled workforce, inadequate infrastructure, compliance issues, and lack of access to markets.
To support and encourage MSMEs in the country, the Government of India has launched several initiatives like Atmanirbhar Bharat. These efforts aim to provide financial aid, marketing assistance, technology upgrades and simplify business processes.
Check Out the Most Common Advantages of An MSME Loan:
One of the most distinct advantages of MSME loans is that they are easily accessible. As mentioned above, there are several ways through which a small business can access an MSME loan. For instance, they can approach a traditional bank or an NBFC, or a Government-appointed nodal agency and authorised financial institution to apply for credit under an MSME loan.
MSME loans are usually disbursed very quickly by lenders. Generally, lenders don’t take more than a week to disburse MSME loans. Some lenders even disburse them within a day or two. For example, with the Government’s “MSME Loan in 59 minutes” scheme, one can get access to finances in as quick as 59 minutes. This happens because MSME loans are collateral-free and hence, they don’t involve a lengthy verification and inspection process. Also, the eligibility criteria and documents required for MSME loans are very simple which helps the lenders in disbursing these loans quickly.
Sudden shortages of cashflow can prove to be detrimental for any business. However, an MSME loan can be of great help in such situations. A small business owner can avail of an MSME loan and tackle the seasonal shortage of cashflow with ease.
The financial requirements of small businesses range from long-term to short-term. Long-term requirements include expansion or renovation of business premises, up-gradation of equipment and technology, etc. Short-term requirements usually include tackling working capital shortfalls, paying wages to employees, procuring raw materials, etc.
While long-term requirements need substantial working capital, business owners can easily meet their short-term requirements through MSME loans. Features like shorter tenures, flexi loan limits, and flexible repayment options make these loans best-suited for the short-term requirements of small businesses.
Another benefit of MSME loans is that they allow small business owners to keep complete control of their businesses in their hands only. If they try to raise capital through other methods, such as angel investors and venture capitalists, they might have to give up a chunk of equity ownership in their venture. However, the case is not the same with MSME loans. Lenders don’t interfere at all in business activities after providing MSME loans. All they care about is the repayment of the loan in a timely fashion.
In a competitive business environment, every penny counts. The more money business owners have in their hands, the better positioned they are to take risks and make profits. With competitive interest rates, MSME loans are designed to make financing accessible and affordable for small business owners. This ensures that they can continue with the business expansion activities without feeling the burden of repaying a high-interest loan.
Also Read: 6 Possible Ways To Lower Your Business Loan Interest Rate
Every small business owner need access to finances at various stages of growing their business. Here is a list of the various ways in which a small business can get an MSME loan in India:
1. Banks
Banks are the most traditional form of lenders that provide MSME loans for small businesses in India. One can approach any private or public-sector bank to avail of an MSME loan. However, banks have very strict eligibility criteria for providing these loans. Their documentation and verification processes for approving MSME loan applications are also quite lengthy.
2. Non-banking Financial Companies (NBFCs)
NBFCs or Non-banking financial companies are entities or institutions that offer similar services to that of a bank but do not hold a banking license. Most of these NBFCs provide collateral-free MSME loans to small business enterprises. There are several advantages of choosing NBFCs over banks for availing of an MSME loan, such as:
3. Government’s Credit Schemes
The central Government of India and various State Governments have introduced several credit schemes to help MSMEs grow and flourish. To avail of funding through any of these schemes, one needs to approach the authorised financial institutions or central nodal agencies appointed by the Government to manage their schemes.
The primary benefits of availing of an MSME loan under the Government schemes are that they are reliable, easy to get, and come with very low interest rates. The purpose of these loan schemes is only to help small business owners. The Government usually provides MSME loans under these schemes at subsidised interest rates. Some of the top Government-backed Business Loan schemes for MSMEs in India are:
An MSME loan can be an excellent instrument for small business owners to grow and expand their businesses. With features like quick disbursal, flexible repayment tenure, and affordable interest rates, MSME loans can help small enterprises meet their exact needs during various stages of their growth.
Poonawalla Fincorp provides a Small Business Loan to help the MSMEs in India grow and flourish. With Poonawalla Fincorp’s Small Business Loan, you can avail of high loan amount and enjoy benefits such as flexible repayment tenure, no collateral requirement, minimal documentation, etc.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Business Loan disbursal is at the sole discretion of Poonawalla Fincorp.
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