Once you have started your business, you can apply through the Udyog Aadhar website to register it as an MSME. Alternatively, you can hire a CA to assist you in registering. An MSME registration may provide many benefits, including getting an SME loan, a lower interest rate, subsidies and incentives, a better chance of winning government contracts, etc.
Purpose of the loan
An SME loan is a single line of credit designed to meet the borrowing needs of small- and medium-sized businesses. You may use this type of loan to fund short-term and long-term requirements. In approving the request, business characteristics, cyclical trends, cash flow projections, and peak times are taken into account.
An extensive amount of documentation is required for a business SME loan, including financial statements, director’s lists, IT returns, and deeds of property owned by the company. SMEs have simpler documentation requirements. When an SME borrows money, the lender will ask for GST documentation, income tax returns, KYC documentation, and bank statements.
A license to register as an MSME
MSME registration should be done on the Ministry of Micro, Small, and Medium Enterprises’ Udyan Portal, and you just provide a certificate of MSME registration.
These loans are available to small and medium businesses and micro-enterprises as defined under the MSMED Act, 2006, with a minimum sales turnover. Each lender determines the minimum turnover requirement.
The enterprise is usually required to provide security or collateral, including hypothecating assets. The loan amount will determine whether or not all promoters/directors/partners must provide personal guarantees. There may be a need for a third-party guarantee if the SME loan amount is above a certain amount. Other leading lenders offer collateral-free funds as well where you do not need to pledge any security.
Aspects of SME loans
- Postdated Cheques or Electronic Clearing Services make repayment easy
- There is a range of tenures available from 12 to 84 months for lenders
- Borrowers are offered attractive rates of interest based on their creditworthiness
- Documentation that is flexible
- Prompt processing
Benefits of an SME loan
It depends on what the applicant needs that determines what can be done with the funds obtained from an SME loan. The following are some examples of how funds obtained from a small business loan can be used:
- Funds for a marketing campaign to reach out to prospective customers or promote a new product.
- Purchasing equipment with funds
- Outsourcing funds fund services such as HR, Finance, and so on
- Amounts required to pay your supplier first so that you can make a profit to pay them back later
SMEs who wish to expand their operations can benefit from SME loans. You can use the SME loan to purchase machinery, equipment, and raw materials, invest in fixed assets, or satisfy the working capital requirements of businesses. The following are some of the objectives that an SME loan can serve:
- In addition, it makes sure that the business is cash-rich – it enables the owner to meet their working capital needs, such as paying salaries and investing in a stock.
- Business loans permit a company to grow and expand – business loans enable business owners to make decisions based on their marketing objectives. Therefore, you will have the money to purchase machinery that will increase production. You can also calculate your monthly EMI with the help of a business loan EMI calculator.
- Businesses can grow much more quickly if they have access to SME loans without worrying about collateral or assets to secure the loan.
An MSME loan applicant must meet eligibility criteria, which are set by the lender, in addition to being a registered MSME.