MSME business loan extends the most effective support to MSMEs to meet their business needs. But, it is equally important to manage the repayment in an appropriate manner. If you have to complete the repayment in a hassle-free manner, it is important that you pick the finance scheme that suits your business the most.
Therefore, you must avail of the loan in a considerate manner. Here come the key points that you must know while applying for an MSME business loan.
Realistic Business Foresight
Business growth is all about precise and realistic business projections. Before you apply for a loan, it is important to evaluate your repayment capacity. The point is, you cannot compromise with other business expenses for managing the loan repayment. Hence, precise and realistic business projection becomes extremely important. It will help you to self-evaluate if you can manage the repayment in the upcoming times.
Collateralized Credit stands for the loan offer that involves tangible resources as security against the loan. These loans are more pocket-friendly for the borrower as it comes with better interest rates and more flexible repayment terms. It is obvious on the part of the lender as they retain the right to liquidate the pledged resource to recover the non-repayment on the part of the borrower.
The borrower can choose to pledge between various resources like residential/ business/ commercial properties, fixed deposit certificates, stock in trade, and various other movable and non-movable resources. The best part is that the lender may feel interested in approving such loans even to applicants with a bad credit history or lower credit score. Usually, the lender takes the minimum time to approve such loan applications and disburse the fund. Therefore, secured loans can be the fastest supply of cash for MSMEs.
While processing secured loans, the lender lends out up to a certain percentage of the existing valuation of the resource pledged. The most important point to consider is the ratio between the funding available and the actual value of the security offered. You should only consider availing of the business loan if the lender approves a significant portion of the value of the pledged resource. In this regard, it is crucial to consider the probable value of depreciation or appreciation of the security for the tentative length of repayment. Your purpose for taking the loan will hardly suffice if you agree to accept a finance scheme that features a low Loan-to-value ratio.
Flexibility in the repayment scheme
Experts advocate that a borrower should accept a repayment scheme that supports the repayment capacity. In other words, the secured loan scheme must feature the flexibility to match your repayment capacity and plans. For example, you need to check if the lender allows partial or complete pre-payment. Again, you should check if you require paying any penalty towards the pre-payment if permissible.
The loan tenor
Higher loan tenor is appreciated as you can manage the repayment with lower monthly installments. However, in the long run, you will end up paying more interest that escalates the cost of financing. On the other hand, you are likely to find yourself in a position wherein paying a high monthly installment can turn into a challenging task. Considering both these aspects, you should decide the loan repayment tenor in a manner that you can manage the monthly installment, and still, you need not pay an excessive amount as interest to the loan.
You should carefully consider these points before you apply for a MSME business loan. You can check the MSME databank for more information. Remember, fair repayment is extremely important as it contributes to your credit worthiness and reputation, powering future business growth.
For hassle-free instant funds, you can also choose an unsecured business loan from Bajaj Finserv and get funds up to Rs. 45 lakh without any collateral.