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MSME refers to micro, small and medium enterprises. Partnerships firms, one-person companies, limited companies, cooperative societies, and Hindu undivided families can obtain MSME registration in India. The eligibility criteria for qualification as MSME depends on the investment and turnover of the enterprise. For instance, enterprises with assets of less than one crore and turnover of five crores are micro-enterprises.

MSME loans are a specific type of business loan availed by proprietary businesses, small and medium enterprises (SMEs), startups, and MSMEs. The primary utilization of such loans is to meet the working capital requirements, facilitate the expansion of businesses, and increase the cash flow. Credible NBFCs in the market offer such loans without any collateral or security. 

If you are an MSME owner looking for business funding, here is a complete guide to an MSME loan’s utility and eligibility criteria. 

The Utilization of MSME/SME Loans 

On fulfilling the eligibility requirements and getting a quick loan sanction, the borrowers can utilize the MSME/SME loans for the following uses: 

• Stock Management

The management of inventory is essential as it directly impacts the sales volume of small firms. Such firms obtain small business loans primarily to purchase merchandise. The MSME loan amount facilitates the operations and manages the supply chain system. By availing of an inventory loan, the medium and small enterprises can refill stock levels, purchase samples and ensure proper availability of funds during seasonal dips. 

• Investment in Fixed Assets 

Investment in property, plants, and equipment result in a significant outflow of finances for small business owners. Such expenditure in fixed assets is capital expenditure. MSME loans can be availed to facilitate the purchase of such plants and machinery. Furthermore, such assets enhance the revenue-generating capacity of small enterprises without affecting the liquid assets. 

• Managing Working Capital Requirements 

Working capital refers to the finances to carry out day to day activities of an enterprise. It is an indication of the enterprise’s liquidity position. An integral part of working capital management is the division of expenditures on a weekly and monthly basis. An MSME loan can be utilized for carrying out recurring activities for small and medium firms without being dependent on suppliers and buyers. 

• Consolidation of Payments 

The primary advantage of availing short term MSME loans is combining smaller payments into one single equated monthly installment (EMI). Such clubbing of payments aids small and medium enterprises by monthly repayments which act as a consolidation of debts for the company. 

• Funding Marketing Campaigns 

Marketing is essential to build a customer base and to expand the reach of existing customers. Small business owners can use the marketing tool to generate new leads for enhancing the business revenue. However, such strategies are expensive as it requires online and offline promotional campaigns. MSME loans can aid in funding such campaigns. 

Eligibility Criteria for availing an MSME Loan 

Several trusted NBFCs offer various schemes based on diverse requirements for these loans. Below listed are the eligibility criteria for availing of such loans:

• Age 

The applicant should be of at least 22 years of age while applying for the loan and must not exceed 65 years at the time of maturity. 

• Category of Business

Private companies, companies in the trading and manufacturing or services sector, and sole proprietorship can apply for such loans. 

• Income Levels 

The business must generate a basic income of at least Rs. 2 lakhs per annum and a turnover of Rs. 10 lakhs per annum to avail the loan.

• Registration

The business should be registered as an MSME in the Udyaan portal to avail the loan. On completion of registration, MSMEs can avail such loans at business loan interest rates and repayment tenures. 

Conclusion

MSME loans are short-term loans to meet the financing requirements of enterprises in India. It is an efficient way to get instant cash for operational expenses or business expansions. The applicant’s profile, repayment ability, and financial stability are a few factors that influence the amount and interest rate on such loans. To get MSME loans with flexible repayment tenures and attractive interest rates, contact us.