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Useful MSME loan Guidelines for Young Entrepreneurs

by janeausten
msme loan

In India, there has been an exponential rise in young and ambitious in the number entrepreneurs in the last two decades. The knowledge gained from management education and the easy availability of loan options are a few notable factors for the growth of business owners.

However, not all small business owners have enough money flow, as growing competition and ever-increasing dependency on technology demand regular cash flow. In such a scenario, MSME Loans are ideal. They empower young entrepreneurs to support their businesses, who prefer them due to various benefits.

What is an MSME business Loan?

MSME Business Loan is a category of loan customised per Micro, Small, and Medium Enterprises (MSME) requirements. Entrepreneurs can take these business loans for building or expanding their business or any specific requirement in a company.

Who can apply for an MSME loan?

  1. Business owners looking to upgrade their businesses by purchasing machinery, equipment or raw material for their production. 
  2. Entrepreneurs looking to expand their existing business operations.
  3. Entrepreneurs looking to invest in fixed assets or buy office space.
  4. Business owners looking to have enough working capital for daily business activities.

What are the Tips to follow before applying for an MSME loan?

You are in the right place if you are a young entrepreneur and want to know the guidelines before applying for an MSME loan.

  • Understand the purpose and determine the necessity of a loan

Before applying for an MSME Business Loan, you must have a proper plan and timeline to repay the loan. Review your business model, set a reasonable budget, consult industry veterans, get them reviewed, and allocate funds for each step. If you find any insufficiency at any stage and need additional funds, go for an MSME Business Loan.

Always ensure that you spend the loan amount towards the pre-set goal. 

Stay focused on your purpose, and do not divert the loan funds to something else, as it may lead to complicated situations in the future. For example, suppose you took a loan for working capital to bear daily expenses and utilise that amount to open a new branch. In that case, you face a shortage of funds for daily expenses and will still have to repay the loan. So, it is better to use the loan amount for the intended purpose only.

  • Check your Eligibility

Before applying for an MSME Business Loan, gather information on eligibility criteria well rather than taking a chance of application rejection due to any requirements.  

  • Know the age limit

The age limit varies from one lender to another. Usually, the lenders ask for a minimum of 22 years at the time of loan application and 65 years at the time of loan maturity.

  • Firm Existence duration

As an individual, if you are in any business set-up for more than five years and a minimum of three years in the current business.

  • Business in Profits and dated

Your business turnover should be a minimum of INR 10 Lakhs per year. It should have been profitable for at least two years. Businesses should have filed a minimum annual income of 2 lakhs per year in the ITR.

  • Keep all the necessary documents for Business Loan Handy

Most of the loans are applied for and approved both online and offline. So, whichever way you prefer, prepare hard and soft copies of all required documents for a Business Loan before applying.

  1. A recent passport-size photograph. Ensure it is at most six months old.
  2. PAN card for self and company as identity proof.
  3. Valid address proof for a business, such as a business registration certificate and applicant’s Aadhaar card, voter ID, or passport.
  4. Bank statements for the previous six months and Form 16.
  5. Last two years’ income tax or GST returns with an audited account summary.
  • Have a good credit score 

Your credit score or CIBIL score plays a major role in assessing your loan repayment capabilities. Keep an eye on your loan repayment history; if anything is pending, clear it the earliest and be aware of the credit utilisation ratio.

  • Repayment strategy

It is not sufficient for you to plan the utilisation of the approved loan amount; you should also be well-prepared with a plan to repay the loan. Timely repayment helps maintain good relationships with the lender and have a good credit score.

Once you start your repayment, you should have a proper plan to balance your monthly expenses and pay the EMIs. You can use the Business Loan Calculator to calculate your EMIs before applying for budgeting. 

  • Have long-term and short-term goals

   Be positive and confidently chalk out the strategy to set long and short-term goals and meet them as per your timelines. Be aware of upcoming cash flow requirements. Also, have a backup for emergency requirements.

Must Read: Benefits of a Good Business Credit Score

Conclusion:

You should research thoroughly before applying for an MSME Business loan. Read through the clauses and instructions carefully. Seek help from an accountant or an SME. Use a business loan calculator and plan loan repayment as per your EMI calculation.

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