Critical Steps MSMEs Should Take to Make Business Loan Ready

The MSME sector has become a pillar of the Indian economy, where they have made substantial contributions over the decades. However, the MSME sector has been confronting severe problems due to various economic challenges, including supply chain disruptions and evolving market demands, such as interruption of production due to the workforce shortage, fall in demand, and inability to pay salaries to its employees.
To get back on track, they require adequate funding which can be fulfilled by taking MSME Loan. Yes, you read that right. There are several banks and Non-Banking Financial Companies (NBFCs) in India that offer these loans with simple eligibility criteria and minimal documentation. These loans are faster and cheaper as compared to other financial products. Also, they help your enterprise reach its full potential.

But before you apply for an MSME Loan, there are a few steps that Micro, Small, and Medium-sized Enterprises (MSMEs) can take to make themselves loans ready which include:

Create a Detailed Business Plan

While applying for an MSME Loan, make sure you make a solid business plan. A well-described business plan can help convince potential lenders of the viability and potential success of the business. Hence, your business plan should include a clear description of the business, its services or products, target market, marketing & sales strategies, competitive advantage, and financial projections.

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Improve the Creditworthiness of the Business

Lenders usually consider a business’s credit score when deciding whether to approve an MSME Business Loan. Your business credit score depicts the creditworthiness of your business. Thus, your business must have a good credit score. But if your business’s credit score is low, make sure to pay all your bills on time, avoid taking on too much debt, and maintain a healthy cash flow. It may also be helpful to take a business credit card and use it responsibly to establish a credit history for your business. Doing this will help you to improve the creditworthiness of the business.

Save Up Some Cash

It is always a great idea to have some savings set aside to cover unexpected expenses. Having a healthy cash reserve can also make it easier to qualify for an MSME Business Loan because it depicts that your business is financially stable and can easily handle additional debts in unforeseen circumstances.

Gather the Necessary Documents

Before applying for an MSME Loan, make sure you have all the required documents, such as KYC documents, financial documents, business address proofs, etc. Having all these documents ready to go can speed up the loan application process and increase your chances of being approved for a loan.

Build Strong Relationships with Lending Institutions

Building a healthy relationship with the loan provider can be beneficial for you and your business in the long run as it makes it easier to avail of loans and other forms of financing in the future. This can be done by making timely loan repayments consistently and maintaining open communication with the potential lender. Doing this will not only help you avail of a loan faster, but you can also receive funds at better terms.

Research Your Options

There are plenty of lenders that may offer different loan terms and rates of interest, so MSME owners must shop around and compare different offers before finalizing any lender. Consider loan factors such as repayment tenure, interest rates, features, benefits, loan charges, or any restriction associated with the loan. This will help ensure that the MSMEs get the best deal possible. However, you may also want to consider working with a financial advisor or business coach who can help you navigate the loan process and find suitable options for your business.

Evaluate Your Loan Repayment Ability

Before you borrow an MSME Loan, make sure you evaluate your loan repayment ability. You should consider your current revenue & expenses and determine whether you will be able to make monthly loan repayments on time. In addition to this, you should consider any potential charges to your regular income or expenses such as a loss of a business or an increase in your monthly expenses. All of this may significantly affect your loan repayment ability.

Hence, you can use the Business Loan EMI calculator to decide how much loan you should borrow as per your repayment ability.

In a Nutshell

Keeping these simple steps in mind when applying for an MSME Loan can help you avail of instant funds in a hassle-free manner.