6 Benefits of MSME Loans for Small Businesses

Micro Small and Medium Enterprises (MSMEs) are the back of economies around the world. India is no exception, with 27% of the GDP contribution and 50% of total exports coming from MSMEs. However, these big numbers are only half the picture. According to Government data, only one-third of MSMEs make it beyond the first year. Failure to sustain business operation beyond the first year really comes down to a lack of funds. 

Small businesses face an uphill battle when it come to securing adequate working capital, expanding operations, buying new machinery, or purchasing raw materials to build inventory. Without an adequate source of funds, it’s near impossible to continue operations. While traditional loans are can be a good source of funds, banks and financial institutions hesitate to lend money to businesses without a strong history of credit.

This is where an MSME loan can be of huge help. The micro, small and medium enterprises loan provides much-needed financial help for small businesses to carry out operations without the fear of running out of money.

Top 6 benefits of MSME loans for small businesses

Easy to access

Adequate a timely funds are the lifeblood of MSMEs. When a small enterprise receives an order, they need to manufacture and build an inventory of products to meet their client’s requirement. This entire process requires funds to meet the delivery of products at every stage. An MSME loan provides easy access to finances that helps businesses plan and execute their business orders with ease. 

Thanks primarily to technological inclusions in the world of finance, most private lenders are able to disburse loans quickly. Small businesses need to provide minimal documentation along with an online form to receive their loan within 24 to 48 hours. Access to quick funds is one of the biggest benefits of an MSME loan.

Zero collateral required 

Another benefit that MSME loans offer businesses is the lack of collateral needed to acquire a loan. Small businesses often struggle to get off the ground and do no have access to property or assets to use as collateral. This makes it an ideal solution to keep their funds flowing without the need for collateral.   

Lenders primarily check credit history, business standing and overall financial health of small businesses. Once the numbers are satisfactory, an MSME loan can be acquired without the need for collateral.

Having full control of operations

One of the best things about taking out a loan, as opposed to getting outside investor/s, is that it gives business owners complete control over their business. As observed by the spate of hostile takeovers in recent times, handing over the keys of your business to an angel investor or venture capitalist is not an ideal situation. 

Outside influence can result in business owner’s losing control to outside parties that are primarily looking to make a quick buck. A loan circumvents this problem by allowing the business owner to have complete control at all times. 

Attractive rates of interest

MSME loans are meant for small businesses; therefore, their interest rates are affordable and competitive. These loans are also not too risky, because they don’t deal with high values. Therefore, you can benefit hugely from these loans, as you use almost the majority of the loan amount for the purpose intended.

Easy and customised repayment options

Some businesses need loans for a short tenure, as they are confident of repaying the same within that period. Some others, however, may need a longer tenure to repay their loans. Irrespective of your requirements, you can opt for MSME loans, as the lenders give you multiple repayment options to choose from.

Today, with many types of MSME lenders in the market (fintech companies, private lending companies, individual moneylenders, etc.), you can expect to get customised loans at reasonable interest rates and flexible repayment options from them.

Reduced taxable income

You can qualify for attractive tax benefits when you apply for MSME loans to grow/expand your small business. Every year, you are expected to file your taxes at a particular time. All you need to do is submit your MSME loan report along with your tax filing. 

The tax authorities will check the same and considerably reduce your taxable amount to the extent of the loan you have taken. This reduction in your taxable income will automatically result in a deduction in your tax liability as well.

Conclusion

With so many types of business loans and lenders available in the market, it may be a challenge to choose the one that is right for you. But TallyCapital enables you to sail through the business loan process successfully. With our streamlined lending process and strategic partnerships, this puts you in a position where you can easily access the financial support you need, while keeping you on what you do best – growing your business.

Tally Blogs
Shubham Sinha   Jun-12-2024
What is the Eligibility Criteria for Business Loans in India?

A business loan can be the solution for businesses looking to fund various activities like buying raw materials, meeting day-to-day expenses or paying utility bills. While applying for a loan is fairly straightforward, banks and financial institutions have an eligibility criterion for borrowers. 

Adequate financing is the lifeblood of MSMEs in India. However, research from the Ministry of Micro, Small and Medium Enterprises shows that around 70% of all businesses shut down after only the first year. Unfortunately, for many MSMEs, access to timely funds is a hugely limiting factor. 

In the following blog, we will look at the eligibility criteria and the documents required for the smooth disbursement of these loans.

Eligibility Criteria  

Most banks and financial institutions provide tailor-made business loans to eligible applicants. The amount disbursed depends on the nature and the size of the businesses. How can businesses qualify for these loans? To know more, read on. 

  • Age factor

The borrower must be between the ages of 21 – 65 to be eligible for a business loan. While this may be generally the case, you should check with your lender about their specific age requirements set by them. 

  • Legal registration of business

Businesses must be formally registered with the Government of India.  Types of registration can include individual, sole proprietorships, partnership firms, private companies, and others.

  • Minimum business turnover per annum

Banks and financial institutions expect borrowers to have a minimum annual turnover of ₹25 lacs to qualify for a business loan. However, some banks may fix this limit at ₹40 lacs as well. Hence, it is important to study the eligibility criteria of the lenders thoroughly before approaching them for loans.

  • Experience of borrowers

Borrowers should have at least two years of business experience in their current location to be eligible for a business loan. Some banks may consider the overall business experience of the borrowers (irrespective of the location). In some other cases, banks may require borrowers to have completed at least three years of operations in the current location

  • Profitability Factor

A business should have generated profit for a minimum of 1 year to become eligible for business loans. Its financials should be strong and creditworthy enough to qualify for these loans.

  • Income factor

All the earnings of borrowers should either originate from their businesses or their investments. Banks look closely at the source of income of borrowers before granting them loans for the day-to-day running of their businesses.

  • Credit score

The CIBIL score or the creditworthiness score of a business owner should be 700 and above to qualify for a business loan. In some cases, banks/financial institutions also grant loans to borrowers who have a minimum credit score of 650.

  • Repayment capacity

Credit score and the repayment capacity are two important factors that banks and financial institutions check about a borrower. Borrowers need to submit their tax returns, income statements, balance sheets, and other important business documents to prove their financial health and repayment capacity to the banks.

  • Other factors

Banks also check the financial history of borrowers to know if there have been any defaulted payments in the past. Borrowers need to have a clean financial record to qualify for business loans. Also, if they are owners of any type of property (residential, commercial, warehouses, etc.), they stand a better chance of getting business loans.

Documents Required for Business Loans

Borrowers need to submit all these documents along with their business loan forms to process their loan applications.

  • PAN Card (individuals, firms and companies)
  • Valid ID Card (can be one of these – AADHAR card, passport, Voter’s ID, PAN card, driving license)
  • Valid address proof (can be one of these – AADHAR card, passport, Voter’s ID, driving license)
  • The last six months’ bank statement of the business
  • Latest Income Tax Returns
  • CA audited/certified copies of the Income Statement and Balance Sheet for the last two years
  • Proof to show continuation of business (can be one of these – income tax returns, trade license, establishment certificate or sales tax certificate)
  • Other important documents that are key to the nature of the business (declaration of  sole proprietorship, partnership deed, director-certified copies of Memorandum of Understanding and Articles of Association,  and the like)

Important note – These are the usual documents that are required to be submitted along with the application for a business loan. However, it is important for borrowers to check with their specific lenders if there are any additional documents required to ensure that their application doesn’t get rejected.

Bottom Line

A business loan can help businesses carry out their daily operations, buy raw materials and equipment, and plan for further business expansion. Hence, borrowers should ensure that they make full use of such loans by knowing the full details about eligibility and the documents required at the time of application.

Like seeking a business loan, selecting the right lender becomes as important as the decision to be financed. TallyCapital, available exclusively to TallyPrime customers, stands out as a prime choice for businesses seeking not just funds, but a partner in growth.

Here are several reasons why TallyCapital could be the best option for your business loan needs: 

Quick procedure

By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

Collateral-free loans

We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free. 

Competitive interest rates

Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure for our customers.

Flexible funding options

Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success.

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Tally Blogs
Tally   Jun-11-2024
5 Common Challenges in Securing a Business Loan in India

Securing a business loan is essential for the growth and sustainability of businesses in the competitive Indian commerce landscape. However, various obstacles can make the loan application process challenging for business owners. Here, we discuss five common challenges that businesses face when seeking loans in India, along with strategies to overcome them effectively.

1. Lack of collateral

Many new or small businesses struggle because they lack sufficient assets to use as collateral. Collateral typically includes valuable items such as buildings, land, or expensive equipment that banks can hold as security for the loan. Without these assets, lenders may view the loan as high-risk, potentially leading to rejection of the application or imposition of high-interest rates.

2. Lengthy procedures

Applying and successfully obtaining business loan can include a lot of unnecessary steps and take long to complete. This elaborate procedure is a time taking process, usually comprising of thorough examination of the company’s creditworthiness, such as its financial statements along with its business plans and credit assessment which may take several weeks and even months to complete. During this period, the business operations might experience negative implications as the CEO and other owners spend more time navigating the loan process than on one’s business itself.

3. Unaffordable interest rates

The interest rates offered by lenders can be high, particularly for small to medium-sized enterprises as they seem risky to financial institutions. These rates determine the monthly repayment amounts, and if they are too high, it can strain the business’s finances. High interest rates could cause an extra burden in paying back the loan amount and in some cases might push a business beyond the point of no return.

4. Low credit score

Many small ventures in India have little credit limits as a result of their lack of knowledge in dealing with credits, the inconsistent activities on their records or they have had poor track records in handling loans in the past. The credit score is therefore a vital tool that banks rely on heavily when they are assessing the viability of giving credit or a loan. A low score can make it very difficult to secure a loan, as it suggests to lenders that the business may fail to meet repayment schedules.

5. Insufficient funds available

Businesses may find that even if they qualify for a loan, the amount approved by the lender may not be enough to meet their actual needs. This could occur if the lender is very cautious about risks or doesn’t fully comprehend the business’s operational requirements. When a business doesn’t receive the necessary funds, it may struggle to execute its plans effectively, resulting in slower growth.

How TallyCapital can assist

Recognizing these challenges, TallyCapital has developed a customized solution for our current Tally customers, facilitated through strategic partnerships with FlexiLoans and Kotak Mahindra Bank.

Key advantages of TallyCapital:

Quick procedure: By taking advantage of the already established connection with Tally, the loan application procedure is considerably speeded up due to the decrease in wait time.

No collateral required: We acknowledge the obstacles faced by young and new companies in raising capital, therefore the loans through our lending partners are collateral-free.

Competitive interest rates: Through negotiations with our lending partners, we make sure that our interests remain one of the lowest in the market, thereby providing a more convenient and affordable financing structure to our customers.

Access to the funds you need: TallyCapital understands the significance of receiving the right footing required by your business. Through our lending partners, we provide lending from ₹50,000 to ₹75 lakhs to businesses of all sizes which allows them to get funds necessary for growth and success.

Conclusion

It goes without saying that getting a business loan in India is not that easy, but TallyCapital enables you to sail through this process successfully. With our streamlined lending process and strategic partnerships, this puts you in a position where you can easily access the financial support you need, while keeping you on what you do best – growing your business.

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