Home Finance Know How You Can Improve Your Eligibility For MSME Loans?

Know How You Can Improve Your Eligibility For MSME Loans?

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Know How You Can Improve Your Eligibility For MSME Loans?
msme loans

Small business owners need unsecured Business Loans for – working capital, machinery, etc. The money obtained through a Business Loan must be used for business-related purposes only; it should be repaid within the provided repayment period in equal monthly instalments (EMIs).

Online financial institutions have become a top option for business owners who need small Business Loans. A paperless system reduces the hassle of a physical loan application altogether. All your financial and KYC papers are scanned and uploaded online. So, in a few working days, your Business Loan application will get processed, and the amount will be transferred straight to your account. 

What are MSME Loans?

If you own a business or are an entrepreneur, you can apply for MSME Loans. In India, many financial institutions provide MSME loans to their clients based on their eligibility criteria. Furthermore, interest rates differ from one loan provider to the next.

This type of loan provides you access to operating capital that you can use for a variety of purposes –

  • Refilling Inventory
  • Investing In New Machinery
  • Paying Staff Wages
  • Supporting The Expansion of Your Business.

Based on your MSME Loan eligibility, online financial institutions and Non-banking Financial Companies (NBFCs) give you an unsecured Business Loan of up to ₹50 Lakh.

To qualify for this credit, your yearly turnover must be greater than ₹9 Lakh. In addition, you can select a longer payback period of between 12 and 36 months.

You have the option to foreclose on your Business Loan account as well.

Note – Besides CIBIL, financial institutions do an independent credit review procedure to assess your financial health.

Tips for Improving MSME Loan Eligibility

In the present circumstances, financial institutions use a strict qualifying criterion to evaluate each company loan application. To guarantee that your application is granted in the first instance, you must address all the crucial parts of a Business Loan application. Here are some pointers to help you improve your MSME loan eligibility:

Check Your Credit Score:

  • If you want to apply for an unsecured Business Loan, keep a careful check on your credit score (CIBIL).
  • Your credit score should ideally be more than 750. However, if it is below this level, you must endeavour to raise it before asking for a company loan.

Boost Your Cash Flow:

  • Any financial institution would estimate your payback capacity based on cash flow.
  • So, make sure you can realise your consumers’ money on schedule.
  • You may also employ cash sales and offer them a discount to swiftly realise your payments.

Pay Your Taxes on Time:

  • You must ensure that you pay your taxes on time, such as Income Tax, GST, Sales Tax, etc.
  • Establish yourself as a responsible borrower to increase your chances of getting a Business Loan.

Prepare all Paperwork:

  • Each financial institution has a list of documents available on its website.
  • You must review this list and verify that you have all the relevant documents with you since failure to do so may result in unnecessary delays.

Keep Your Credit Utilisation Ratio Low:

  • Financial institutions often evaluate 40% of your monthly income when determining your EMI repayment capability.
  • Maintain a modest debt exposure to qualify for an SME loan.

MSME Loan Collateral:

Leading financial institutions will grant you a Business Loan without collateral; one such provider is Poonawalla Fincorp. MSME loans are unsecured loans for which no collateral is required. However, if a financial institution is providing you with a Business Loan with collateral, contact them and inquire about the terms of the security you may be required to supply.

RBI regulations require lending institutions to provide Business Loans without collateral (MSME loans of up to ₹10 Lakh). Financial institutions may increase this limit to ₹30 Lakh based on the financial situation and track record of the MSME firms.

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