The annual report of the MSME Ministry (for FY19) charted that India has approximately 6.33 crore MSMEs, amongst which 6.30 crore constitutes as micro-enterprises. The number of registered MSMEs in India further increased by 18.49 per cent in FY20 as compared to the previous year. Several factors are there that contributed to this gradual growth of the MSME sector.
To begin with, the MSME loan scheme plays a major role in shaping the future of the MSME segment. It allows aspiring business owners to borrow a substantial amount for variegated business requirements. However, these credits are only sanctioned after assessing the eligibility of the applicants to minimize the risk of loan defaulting or accumulation of NPA.
6 ways to improve eligibility for MSME loan for small business
Besides knowing about “what is MSME”, it is of equal importance for entrepreneurs to adopt methods that will help them become eligible for MSME loan scheme with ease.
Here are a few aspects that you should consider before applying for this loan.
- Maintain a good credit score
It is one of the essential things that any lender will review before sanctioning a business loan. Such financing also includes funds disbursed under an MSME loan scheme. Since credit score denotes the creditworthiness of a borrower, lenders take this aspect extremely seriously. In most cases, experts advise to keep a credit score of 750 and above to get the desired loan amount. If you are yet to reach the threshold, you can practise the following
- Pay credit card bills within the due date.
- Avoid applying for multiple loans within a short time.
- Pay EMIs without any miss.
- Ensure your credit report does not carry any erroneous entry or transaction details.
2. Lower your credit utilization ratio
Another excellent way to increase your eligibility for the available MSME loan schemes is by lowering your credit utilization ratio. Most financial experts suggest keeping this ratio below 30% of your monthly income to stay in the good book of lenders.
3. Keep a healthy credit flow
Lenders will conduct a thorough review of the regular cash flow of the business, especially for small organisations. Moreover, based on this assessment, they will decide the repayment capabilities of the borrower. Therefore, it is essential for business owners to ensure that they are getting their dues from customers within the stipulated date. On receiving the same, do not forget to update it in the balance sheets.
4. Pay taxes on time
Showcasing the taxable income clearly and paying the taxes in time establish financial habits that will help you get a business loan promptly. It acts as another proof of income, and allows lenders to validate several essential aspects (such as an applicant’s income, liability, etc.) before providing a credit.
From this practice, lenders will ascertain the repayment capacity of the applicant and will consider their eligibility for an MSME loan scheme.
5. Keep documents up-to-date
Apart from scrutinising the creditworthiness, lenders also ask for necessary documents before approving the loan amount. Therefore it is vital to keep the documents handy for quick online submission.
Selected financial institutions like Bajaj Finserv sanction a business loan to an eligible candidate with minimal documentation, which saves a lot of time.
You can also enjoy a pre-approved loan offer that makes the loan approval process even more streamlined. An offer like this is available for a range of unsecured credits, for example, business loan, personal loan and others. Moreover, you can check your pre-approved loan offer instantly by mentioning your name and phone number.
6. Clear outstanding debts
Another convenient way to establish a good repayment capability is by clearing the existing debts efficiently. To make the process simple, you can start with repaying the small debts.
Moreover, you can also borrow funds, especially for debt consolidation.
Following these tips diligently, you can improve your MSME loan scheme eligibility to a great extent. Even so, it would help if you adopt other great cost-saving tips for small businesses so that you can enjoy better financial backing for everyday operations.
