MSME business owners have to invariably face more uncertainty and overcome unforeseen circumstances while running their businesses as compared to huge enterprises. These might include delays in vendor payments, unexpected demand peaks, rising price of goods and raw material, to name a few. While they need immediate cash flow to tackle such situations, approaching financial institutions with long drawn loan protocols is arduous, time-consuming, and mostly inaccessible. That is why many entrepreneurs look for collateral-free Business Loans for quick loan sanctions. For the same, they prefer going to NBFCs that approve loans quicker, with substantially easier eligibility criteria.
If you have a decent credit score and business vintage get easy loan access at a very competitive MSME loan interest rate. These loans have no end-use restrictions, allowing borrowers to use the loan amount for any business-related purpose you want.
Taking a loan from an NBFC does not involve profit-sharing, and the lending institution does not interfere with business operations. However, researching and considering several things is essential before taking out an MSME loan. Since one size does not fit all, we will discuss a few factors to consider while selecting the best MSME loan for your business.
While evaluating MSME loan applications, lending institutions check your business’s creditworthiness. Here, credit scores are vital in determining the loan amount, interest rate, and other terms and conditions. The higher the credit score, the more favourable the loan offer. A Business Loan calculator, available on the websites of top NBFCs like Clix Capital, can help you better evaluate the loan requirement, availability, and financial outlay before application.
Lending institutions offer Business Loans based on the firm’s financial requirements. You must be clear about the funding requirements for efficient loan utilisation. Here are a few questions you must ask:
Finding answers to these questions will give a clear understanding of the loan requirement, and surely help you make the best decision. Obtaining a loan aimlessly without a calculated plan doesn’t work out for any stakeholder.
Getting a Business Loan is easy if you decide to get it from a reliable lending institution. NBFCs are tech-driven entities that leverage the latest digital tools to streamline the loan process, making it easier for borrowers . However, please check the NBFC’s track record, reputation, organisational structure, and flexibility to ensure reliability while availing a Business Loan.
Loan seekers should thoroughly check a prospective lending institution’s eligibility criteria to apply for Business Loans. After submitting the MSME loan application form, the lending institution will check your credit score and profile. Visiting the NBFC’s website and checking their eligibility conditions will give you a clear idea about your loan eligibility before you apply.
Having too many loan enquiries within a short period is not favourable as it impacts the credit score and is considered a red flag for many lending institutions. Each NBFC has different criteria to determine an applicant’s eligibility, loan amount, and interest rate. If you check these eligibility conditions beforehand, you will apply only to NBFCs you are eligible for. For MSME loans, eligibility conditions often include minimum turnover, business location, years in business, financial performance, credit history, etc. Assess these factors carefully before filing the loan application.
Business Loans can be secured or unsecured. Backing a loan with collateral attracts a favourable MSME loan interest rate. However, in case of a default, the lending institution can recover the amount by acquiring or selling the pledged collateral.
If an MSME can afford to offer an asset as collateral, they must structure the loan securely and make a robust repayment plan to secure their asset. Consider taking an unsecured loan without collateral, security, or a guarantor if finances are uncertain. Current assets have no risk even if the borrower defaults on the loan.
How soon does the business need the loan? Some lending institutions may offer a better MSME loan interest rate, but they may take weeks to approve and disburse the loan. Not everyone can afford this timeline if they have urgent funding requirements. In that case, they may agree to take a more expensive loan due to easier and faster availability. However, some firms may be ready to wait if the interest rates are more crucial. They might need to revise their business projections according to the timeline in fund availability.
A repayment plan to pay off the loan is crucial when selecting a Business Loan. You must evaluate their finances, consider their current monthly obligations, and make a loan decision according to their repayment capacity. While NBFCs can generally customise the loan plans, you can choose a loan tenure with EMIs they can easily afford. Use a Business Loan EMI calculator to calculate EMIs for different loan terms and opt for one with budget-friendly monthly instalments.
Although modern NBFCs have streamlined loan procedures that applicants can complete without hassle, first-time borrowers might need expert help at different stages. Customer service is necessary not only during the selection and application process but also during the repayment term and after that. The NBFC you choose must have an easily accessible customer care department accessible through call, email or WhatsApp.
There are several other factors to consider while choosing an MSME loan, such as approval time, disbursal method, end-use restrictions, flexibility in repayment and a few others. Shortlist a few lending institutions, check their terms & conditions, see the eligibility criteria on their website for getting a complete know-how of the loan process. Consider a technologically-advanced lending institution that can offer the best MSME loan interest rate along with a quick online application process that needs minimal documentation. Time is money, after all.