Micro Loan

What is Micro Loan: Meaning, Objective, and How to Apply

July 15, 2023 • 2165 views

Micro Loans have emerged as a beacon of hope for numerous entrepreneurs as well as small businesses. But what is a micro loan? Beyond its simple description, there is a world of possibilities that we are about to delve into. This blog will look at the definition, goals, as well as their revolutionary potential. 

What is a Micro Loan?

A micro loan is financial support for entities that are generally small or medium-sized, as a means of running their business without having to pledge any security or collateral. A micro loan can be used by an entity for a variety of purposes, from buying inventory to funding other administrative operations. You can avail of these loans with minimal documentation, a hassle-free application process and attractive and low-interest rates. Moreover, the eligibility criteria are simple, including requirements like the company should be at least two years old with a turnover of at least Rs. 9 Lakh per annum.

Objectives of Availing of Micro Loan

Before moving further with taking out a micro loan, it is necessary to review the objectives. Listed below are a few key objectives of availing of a micro loan:

  • To encourage and support the expansion of small businesses
  • To support women entrepreneurs
  • To assist in cash flow mismatches
  • To help during a financial emergency
  • To boost the morale of small business owners
  • To help in the upgradation of machinery and capital equipment for small and medium-sized businesses
  • To foster economic empowerment and financial inclusion
  • To have a social impact by providing funds to underserved communities and individuals with limited resources.

Advantages & Disadvantages of Micro Loan

It is highly crucial to weigh the pros and cons before opting for a microfinance Personal Loan. Let's learn about the advantages and disadvantages of microloans, respectively:

Advantages

You can find out the various advantages of micro loans below:

  • Access to Capital

Individuals and small enterprises with little or no access to standard banking services can benefit from micro loans. Borrowers can use the money to expand their businesses, invest in income-generating activities, and cover their immediate financial requirements.

  • Flexible Repayment Tenure

Micro loans frequently have variable terms, repayment schedules, and loan amounts that are suited to the unique needs of the borrower. Borrowers can control their cash flows and repayments through their income-generating activities thanks to this flexibility.

  • Collateral-Free

Since it is an unsecured loan, you are not required to pledge any collateral or security to avail of a Micro Loan. You can get easy access to funds without having to put forth an asset.

Disadvantages

Below are the disadvantages of Micro Loans:

  • Risk of Over-Indebtedness

Borrowers who rely extensively on micro loans to sustain their enterprises or pay day-to-day expenditures may be at risk of becoming over-indebted. Taking out many loans at the same time without effective cash flow management can result in a debt burden that is impossible to repay.

  • Limited Loan Amount

Micro Loans are often for lower loan amounts that may not be enough to cover the bigger capital requirements of some firms or initiatives. Borrowers may require extra finance sources to completely realize their company objectives.

  • High-Interest Rate

The interest rate on a loan varies as per certain factors like your income, CIBIL score and your overall financial health.

Also Read: Should You Consider a Personal Loan for Business Use?

How to Apply for a Micro Loan?

Applying for a microfinance Personal Loan is an easy and hassle-free process. All you have to do for micro loan apply online:

Step 1: Click on the 'Apply Now' button available in the right top corner.

Step 2: Fill in the loan application form with your details.

Step 3: Upload the required documents and click 'Submit'.

After you have submitted your application, it will be reviewed and verified by loan experts, and upon approval, you will receive the micro Personal Loan amount in your bank account.

What are the Documents Required for Micro Loans?

There are some mandatory documents that you need before applying for a micro loan. These include:

  • Aadhaar Card, Voter ID, Passport, PAN Card, and Driving License are required for your verification.
  • Business Registration certificate is mandatory to verify your business.
  • Utility Bills or Rent Agreement is required to verify your Business Address.
  • Your bank statements for the past 6 months are required to verify your income.

Eligibility Criteria for a Micro Loan

There are certain eligibility criteria that you will have to meet to get a micro loan. These are as follows:

  • Age: You must be aged 24 or above to apply for a micro loan.
  • Business Age: Your business be at least 2 years old on paper.
  • Minimum Yearly Turnover: Your business must have a minimum yearly turnover of Rs. 6 Lakh.

Popular Micro Loans in India

Three types of micro loans are mostly popular in India. You can learn about them in the below points:

1. Emergency Loan: This is a form of micro loan that supports people in times of emergencies such as hospitalisation and death.

2. Income Generation Program Loan: This type of micro loans is given with the main purpose of generating income opportunities and secondly for creating assets.

3. Small and Medium Enterprise Loan: SME loans help businesses raise their working capital, purchase different machinery, and consolidate high-interest loans. It even allows businesses to expand their business.

Also Read: What is MSME Loan? Why is it Useful for Small Business Owners?

Check Free CIBIL Credit Score

In case you have been planning to apply for a loan, then you need to know your CIBIL score. Follow the below steps and check your CIBIL score for free:

Step 1: Find and click on the 'Free CIBIL Score' button.

Step 2: Select gender and type of employment on your CIBIL Score application.

Step 3: Submit your details like name, contact number, mail ID, PAN card number, and address proof.

Step 4: Check if the details are accurate and then submit your application. You will receive the CIBIL score report via mail.

To Conclude

Financial possibilities are opened, entrepreneurial aspirations are realised, and communities are empowered in the realm of a Micro Loan. By trusting the promise of micro loans and their transformative power, individuals and enterprises can embark on a journey that will lead to financial resilience, social empowerment, and economic prosperity.

With reasonable planning, thoughtful use of funds, and ongoing assistance, microcredit can be an important catalyst for change. You can now apply for an MSME Loan at Poonawalla Fincorp and take your business to the next step.

FAQs

  • How are microfinance loans paid back?

Typically, microfinance loans are repaid over a fixed period in regular payments. The repayment terms and time frame are different from lender to lender. Depending on the borrower's income cycle, payments can be made several times a month.

  • Are microfinance loans good or bad?

Depending on individual factors such as borrower circumstances, lending conditions and support services provided, the impact of microfinance loans is different. Microfinance loans may be financially advantageous for individuals and smaller businesses who still need access to normal banking services. They are capable of providing opportunities for entrepreneurship development, as well as poverty alleviation.

  • What is a Micro Loan also known as?

Some common alternative terms for Micro Loans include microcredit, small-scale loan, Small Business Loan, microfinance loans, or small enterprise loans. These terms essentially refer to the same concept of providing small-scale loans to individuals, entrepreneurs, or small businesses with limited access to traditional banking services.

Disclaimer

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. Personal Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply

poonawalla fincorp team

Poonawalla Fincorp Team

Our team of expert writers and editors are passionate about providing authentic and valuable information on finance. Our aim is to simplify financial and finance-related concepts. We strive to help our readers become more aware and empowered to make informed financial decisions.

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