Are you planning to grow your business? If yes, you will need a trustworthy loan to help finance your business. MSMEs are the country’s hope to rebuild the economy in the next few years, so the government is stepping up with a few initiatives.
Almost on an annual basis, the Government is introducing and improving on existing loan schemes to help extend or provide credit to small businesses.
- 1 Where to apply for a small business loan of up to 50 Lakh?
- 1.1 NBFC Loans:
- 1.2 Tips to remember when applying for business loans –
Where to apply for a small business loan of up to 50 Lakh?
National Small Industries Corporation (NSIC)
The Government loan scheme by NSIC is set up to meet the credit needs of MSMEs. If your business is looking to expand, this loan works well. Why? The NSIC has signed an MOU (Memorandum of Understanding) with leading nationalized and private sector banks and NBFCs (non-banking financial institutions) to help facilitate loans for small businesses.
With this scheme, small businesses can benefit in 2 ways:
- Zero security deposits: Along with providing marketing assistance and raw material assistance, small businesses will not have to pay a security deposit to avail finances.
- Finances for land and building: For small businesses looking to invest in land up to Rs. 25 Lakh, the scheme provides a financial facility for land and building department.
Available loan limit: Upto 30 Lakh.
The interest rates levied on MSME loan varies from bank to bank ideal between 10-12%.
4E ( End to End Energy Efficiency)
Launched in September 2016, this government loan scheme is headed by the Small Industries Development Bank of India (SIDBI) and World Bank.
This loan is for MSMEs that fall under the manufacturing or service sector for a minimum of 3 years with a cash profit of 2 years.
If you are applying for this loan, make sure your business has gone through an audit with the Bureau of Energy Efficiency.
With a goal to implement and maintain energy efficiency measures with MSMEs in India, this loan scheme aims to help startups finance purchases of second-hand machinery/equipment.
The business loans for startups under this scheme meet part costs of Capital expenditure, including for the purchase of equipment/machinery, installation, civil works, commissioning, etc.
The MSME startup has to pay only INR 30,000 and applicable taxes and the balance fee will be paid by SIDBI to auditors.
Available Limit: A minimum loan amount of INR 10 Lakh and a maximum loan amount up to INR 150 Lakh per eligible borrower.
Eligible loan amount should not exceed one-fifth of the total turnover of the applicant unit.
Tenor: The repayment period, including the initial period of up to 6 months, shall not be more than 36 months for loans up to INR 100 Lakh.
Credit Guarantee Scheme (CGS)
This loan scheme by Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is applicable to new as well as existing MSMEs in the manufacturing or service sector excluding retail trade, educational institutions, agriculture, self-help groups (SHGs), training institutions, etc.
The Credit Guarantee Scheme was launched by the government to strengthen the credit delivery system and facilitate credit flow to the MSME sector.
This MSME scheme for entrepreneurs comes with a number of benefits, including term loans and/or working capital loan facility above 50 Lakhs (up to almost 200 Lakh) per borrowing unit. Here are some more details of the scheme:
- The guarantee cover provided is up to 75% of the credit facility up to INR 150 Lakh
- Micro-enterprises avail 85% of credit facility for loans up to INR 5 Lakh
- 80% of the credit facility for women-owned MSMEs and North East regions.
News Update: Recently, the Reserve Bank of India increased Peer-to-peer lending institutions limits to around ₹50 lakh. The limit is the total amount of money any investor can invest across all P2P platforms.
Currently, the limit for both borrowers and lenders sits at ₹ 10 Lakhs. With the new limit, lending institutions find more growth potential and in turn, will have the means and ability to help small businesses and MSME borrowers secure larger loans for their businesses.
Lendbox is an RBI licensed NBFC peer-to-peer lending platform which offers a safe environment for borrowers and investors from the MSME sector.
The NBFC cuts down interest rates for borrowers and increases investor’s yields by eliminating mediators like commercial banks, depository institutions, etc.
Lendbox creates a one-stop-shop for all borrowers with varied profiles and needs, who can have access to both retail and institutional investors with varying risk appetites.
ZipLoan is an RBI registered NBFC that offers unsecured business loans of up to Rs. 1-5 lakh. The NBFC requires a minimal list of documents and disburse the business loan within a few working days.
Your small business can apply for an unsecured business loan online on their website or through their app. Ziploan will process your loan in a few hours.
Tenor: Collateral free loans repayment period takes place over a period of 12-24 months in easy monthly instalments.
In conclusion: Look to NBFCs and reliable Government schemes that offer loans; especially when you’re expanding the business. Don’t worry too much when it comes to applying for large loans for your business.
Sure, the economy is not doing so great, but 2020 looks like a good year for the MSME sector – all you need to do is make the right choice. For example, for quick ways to credit payments to you faster, check out mojoCapital – Instamojo’s faster payouts feature. Your money is credited directly to your bank account in 1 day, the next day or instantly!
Tips to remember when applying for business loans –
Let’s do a quick run-through of what your business needs to know before you apply for a large loan:
Firstly, is your business eligible for a loan? According to updated rules by the Government, your business must be at least 2 years old (since operations commenced) and the business owner must be of at least 21 years of age.
Track record: Your business should also maintain a perfect credit score and assets to offer as collateral to the bank.
Documents Required for Government Loan Schemes
A few common documents your business will need to keep ready before applying for a business loan include:
- Passport-size photographs
- Business plan
- Identity, Age, Address and Income Proofs
- GST Identification Number
- Income Tax Reports for up to 5 years
- Bank statements of the last 6 months
- Business address proof
- E-KYC Completion
- ITR returns for last 2 years
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