Every day new businesses are being established. Some are large scale organizations while others are more on the smaller end. Such businesses start small, but with proper planning and progression, these small businesses can grow.
What Are MSMEs?
MSME is the acronym for Micro, Small and Medium Enterprises. As the name suggests, these are small businesses that are concerned with the production, processing, and preservation of goods.
The following decided whether a business is an MSME:
| Business Type | Investment In Plant And Machinery | Investment In Equipment |
| Micro Business | Less than Rs.25 lakh | Less than Rs.10 lakh |
| Small Business | Rs.25 lakh to Rs.5 crore | Rs.10 lakh to rs.2 crore |
| Medium Business | Rs.5 crores to Rs.10 crore | Rs.2 crores to rs.5 crore |
How To Grow Your MSME Business?
Every businessman wants the business to grow. To do so, the organization needs to undertake larger operations and expand its influence and fame. Getting the attention of more and more people while showcasing the product and/or service is the key when it comes to growing one’s business.
Understand your target audience: Different businesses offer different products and services. Not all will need services at a certain time. So, it is important to know what kind of people are willing to invest and purchase the business service/product.
Similarly, understanding the needs and requirements of the customer is crucial. Depending on the needs and demands of potential customers, a business product can be made or tailored to meet the market demand.
By asking to provide feedback and taking surveys, one can get a lot of information regarding the current trends and needs of customers.
Refine the work as time passes: The business market is a dynamic one. Trends come and go in the blink of an eye. To take your business to the next level, you must be able to read the changes and predict future demands. Refining the product by making upgraded models and version or by improving the benefits and cost of services effectively is integral in being able to grow your business enterprise.
Treat your Customers Right: Customers are the lifeblood of all businesses, be it small or large. As an MSME, you will have a small group of old customers who would have been by your side since the beginning. It is important to have a good rapport with these customers whilst proving security and approval to new ones. By going the extra mile and providing the best service possible, customers will be more likely to remember your business and come back again in the future.
To add to that, having satisfied customers will make it more likely for them to refer your business to more and more people. This can greatly help increase your customer pool and help expand your business to new areas.
Create Brand Awareness: Brand awareness is vital when trying to attract new businesses and getting the favour of locals. By partnering in local events and sponsoring in the local community, you can develop a great business profile that will boost growth.
Events: Events are a great way to gain brand exposure. Events help you and your business to know your customers and patrons better and build long-lasting relationships. Inviting old customers and their friends and partnering with other new and upcoming businesses will help you take your own business to new levels.
Social Media: Social media is the language of the generation. Through ‘social listening’ you can gain valuable insight and at the same time promote the business to new customers and partners.
By having a prominent existence on social media, you can know what your customers think about the business and make changes according to the information. By capitalizing on social media trends, you can propagate your business profile and attract new customers by educating them about what the business stands for.
Digitization Of Your MSME
There are many MSMEs that have yet to be integrated into a digital format. India has become a digital market where consumers rely on online forum and sites for almost everything. This needs to be capitalized by MSMEs to help them grow and compete with other larger and pre-existing companies and enterprises.
The benefits of going online are as follows:
- Customer Support: As an MSME, you will need to provide customer support to your client for your products or services. By employing the use of AI and chat boxes, you will be able to provide quality customer care in larger numbers which would otherwise be impossible with only a physical workforce.
- Cost reduction: Machine learning is by far the greatest tools for a producer. By going online, you can take advantage of machine learning which can greatly help in reducing the cost of production all the while increasing efficiency.
- Lower Risk: As more and more aspects of MSMEs are digitized and made online, the risk of human errors has decreased, and the total amount of productivity has increased. With a proper system in place, the amount of supervision also decreases due to the automotive process. This gives the MSME to reallocate its workforce in different areas for growth and development.
Finance For MSME Growth
One of the biggest hurdles faced by MSMEs for growth and digitization is the cost. The cost of expansion can often discourage MSME from doing so. Even if the benefits of growth are much more than the cost, in the long run, small businesses and MSMEs cannot afford to take that first step. The same applies to integrating into an online platform or forum.
To combat this lack of funding, a small business can take a loan. There is a wide range of MSME loans which are specifically catered to help micro, small and medium businesses get the boost they need.
What Is An MSME Loan?
MSME or SME loan schemes are loans that are offered to small businesses for a shorter tenure. Most MSME loans are unsecured loans and their tenure tends to vary depending on the loan provider.
Upon meeting the requisite eligibility criteria of the lender, the business can apply for the loan and get the fund they need to further expand their operations
MSME loans can be for short periods with a minimum of 12 months to slightly longer tenure with maximum being 5 years.
Eligibility Criteria For MSME Loan
To apply for an MSME loan scheme, businesses must first meet certain eligibility criteria. These criteria are fixed by the individual lending parties. As such the eligibility requirements tend to vary from lender to lender.
The basic criteria’s are as follows:
| Type of company | Public/ Private Limited Limited Liability Partnership Sole Proprietorship Partnership Firm |
| Age of the owner | Minimum -18 years Maximum- 66 years |
| Vintage | 2 years (with profit) |
| Turnover | Varies according to lender |
Along with these basic requirements, the following are compulsory requirement across all MSME loan lenders:
- The business must have a good credit score and history with the bank.
- Income tax returns for the past 2 years must be in order along with the previous year’s GST Returns
- All documents that are to be presented to the lending party must be certified and attested by a CA.
- The business owner/ holder of the loan documents must be an Indian citizen with no criminal history or background.
Benefits Of Getting An MSME Loan
As one of the biggest hurdles for any MSME to grow is having a lack of funding, MSME loans can help remove that obstacle. By taking a loan, MSME and SME businessmen can get the required funding to improve their level of operation and increase their productivity which will aid in taking their business to the next level.
- Unsecured: SME and MSME loans are unsecured. It is not necessary to pledge a security to the lending party in return for the funding. Such loans are formed keeping the situation of small businesses in mind making it an ideal source of finance.
- Flexible: MSME loan schemes are provided on a short-term basis. Small businesses need not make long term commitments in repayment of the loan amount. To add to that, such loans have lower interest rates. All these factors together provide the ideal situation for small businesses and companies to grow and develop.
- Easily accessible: Almost all types of lending organizations or companies offer MSME loans. From banks, lending parties, online lenders and other financial institutions, you can find a variety of MSME loan schemes with relative ease. As a businessman, you can get a loan as and when required by your business proceedings.
- Small businesses can also take different MSME loans from different lending parties. The only catch is that you may not take multiple loans from the same lender at the same time. From a single lender, only one MSME loan can be taken. This loan can be renewed at the end of its tenure.
- Quick approval: Upon meeting the eligibility criteria and submitting the loan application form along with all necessary documents, the MSME loan will be sent for verification. After verification, the loan application will be approved in 2-4 business working days ( this may vary from lender to lender).
- EMI: MSME loans are paid in EMIs or equated monthly installments. These EMIs can be paid in monthly or bi-weekly basis depending on your convenience.
To calculate the EMI for your MSME loan, the following formula can be used:
- P*R*(1+R)N
- ((1+R)N-1)
where,
- P is the loan amount
- R is the rate of interest
- N is the number of months
Charges Associated With MSME Loans
| Processing amount | 0 to 4% of the loan amount |
| Cancellation fee | Depends on the lending party |
| Rate of Interest | Varies from lender to lender |
| Foreclosure fee | 0 to 5% of the loan amount |
| Part-payment fee (if any) | 0 to 4% according to the lender |
| Renewal fee | Processing amount of the loan |
Documents Required For A MSME loan
Different financial lenders have different policies for MSME loans. This also means that different lending parties will have varying required documentation for verification of the loan application.
To know the exact documents required, you can visit the webpage or directly contact the chosen lending party. But the basic and common documents most lenders will ask for are:
- bank statement for the past 12 months
- proof of business registration
- company PAN card
- Aadhaar card
- partnership deed (not required for sole proprietors)
- business owners PAN Card
MSME and SME loans are a great way to get the required finances from your business during its early stages. Having the proper financing early on will boost business proceedings and small businesses can digitize must more quickly. The transition to online platforms and establishing online presence become much smoother.
So, if you are looking to revamp your small business and are lacing funds, then consider getting a MSME loan.
