MSME stands for Micro, Small, and Medium Enterprises. It was first introduced in the form of an act whi9ch was called Micro, Small and Medium Enterprises Development (MSMED) by the Government of India in the year 2006. According to the act, MSMEs are defined as enterprises involved in producing and preserving the goods produced. The sector is vital as it comprises around 33.33% of the total GDP of India. It also generates employment for a total of 110 million of the population.
These MSMEs can further be classified into three broad enterprises: micro enterprise, small enterprise, and medium enterprises.
Like any enterprise, it needs a certain amount of capital, machines, and so on for its business to at least function. But since these businesses are characterized by low output and productivity, it doesn’t have enough economic power to acquire such resources. For such purposes, there is the availability of MSME loans.
So, what are MSME loans?
As the name suggests, MSME loans are unsecured loans. These are provided by financial institutions, which can be either private or public, which differ based on the interest rates that they provide. Such loans are business by the mentioned enterprises to meet their expenses with credit. Though the loan is like bliss in disguise as it allows for a wide variety of support in financial terms, it comes with a certain number of eligibility criteria that the borrower must possess, or else the lenders won’t provide the loan to them. The government of India and RBI describes the MSME loans as loans required by the mentioned business enterprises used to meet up with their expenses in terms of financial, infrastructure, and other associated areas.
So how can you acquire MSME loans?
One can obtain a loan based on a good credit score. But before proceeding, one should have a good idea about credit scores. These can be treated as parameters where a better value enables the lenders to trust you and therefore decides to lend you. The lenders typically depend on the borrowers’ credit score to decide whether to give them the required loan. So having a good value credit score is essential for the borrowers.
Therefore, we have seen that having a good credit score allows you to have a greater chance to acquire an MSME loan. Credit scores have a significant role in determining whether a borrower can receive a loan from the lenders or not. It helps the lenders decide whether a particular loan required by the enterprise for business purposes is approved. An effort to improve the credit scores enhances the probability of the lenders considering you eligible for the loan where the loans are available at relatively low and affordable rates compared to other loans provided.
Important points which MSMEs should be concerned about
There are certain points that the MSNEs should be concerned about, which helps them improve their credit scores and, therefore, increases the chances of acquiring the loan. These are-
- Make sure to repay the loans to the lenders on time
- While applying for the credit, one should do it carefully
- You should check such credit scores and Business Credit Reports continuously to know where you are presently situated and improve on your credit score if you notice a falling trend.
Therefore, we see how does a credit rating help to get an MSME loan.
You can apply for the MSME loans through banks or private lenders available both offline and online mode, provided you have done your MSME registration from the official website. In both sources of obtaining the loans, the requirement of the documents is mandatory. The required papers are shown below for the convenience of the viewers-
- PAN Card, Aadhaar Card, voter id, driving license, etc., required for your identity verification.
- Ration card, Aadhaar Card, etc. for having information regarding your address
- Salary slips for the past six months to have a good idea of whether you are capable enough to repay the loans or not.
- Passport size photographs.
Only after submitting the submission of the application form followed by the proper verification of the documents will your loan be approved, which will then be transferred into your account.