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August 13, 2021

5 Challenges You May Face While Applying for An MSME Loan

MSME full form, Micro, Small, and Medium Enterprises, has a varying definition in terms of assets. The MSME sector plays a vital role in the economic growth of the country. It contributes much to the GDP and overall employment rate in India. 

However, finance is one of the major constraints to MSMEs. By availing the right amount of finance, small and medium-sized businesses can find opportunities for growth. The ultimate option for them is to apply for the MSME business loan. Several financial institutions offer unsecured loans to these businesses. 

Moreover, there are government schemes, like Credit Guarantee funds, Micro Unit Development and Refinance Agency, Prime Minister’s Employment Generation Programme. Although there are several government initiatives, policies, and loans, MSMEs find challenges.

Check out these challenges as one of the small and medium business owners.

Financial knowledge- Not strong

You may have some inherent entrepreneurial spirit to achieve success in your business. However, some MSME owners do not have the financial literacy needed to make the smartest decisions. It may result in low credit scores and an imbalance in working capital. 

In some cases, MSME owners cannot find the most reliable lender. Ultimately, they need to pay a high-interest rate on the MSME business loan. Another barrier to securing a loan is that they do not know about the innovative financial technologies used by NBFCs. Thus, both private and public sectors have to take steps to help MSMEs to become financially illiterate. 

No availability of better financing solutions

While reviewing MSME loans, you can feel the effect of old rules and regulations. Small and medium enterprises need to have certifications, insurances, licenses, and several other documents to obtain the loan. 

Due to the strict regulations, several MSME owners do not get the fund on time. But, they do not know online business transactions and loan applications are easier for them. They think that these are not the trusted options. 

Lack of trust

Some banks do not like to provide loans to SMEs, as these businesses have small accounts. Furthermore, banks think that MSMEs will not easily repay the amount. That is why they have imposed stricter rules for the MSME business loan. 

Moreover, credit rating is another concern for SMEs. Banks like to offer loans to those who have high credit scores. When you are a high-risk borrower, you may not be eligible for the loan.

Complicated disbursement option

Traditional lenders have set very strict eligibility criteria. Without the right documents, you cannot get the desired loan. They have a long, tedious procedure to process the loan and credit the funds. But, some MSMEs are in urgency when they apply for the loan. They will use the loan as their working capital. Thus, the conventional financing scheme is not the right choice for them. It is one of the reasons for which MSMEs are looking for better NBFCs.

Need to choose collateral

It is one of the biggest barriers to the MSMEs looking for a loan. Most of the small and medium-sized companies do not have assets to choose from as loan collateral. Thus, they search for unsecured business loans. They do not need to use assets to secure the finance. The best loan providers can offer loans without any collateral.

You can keep away from these challenges by finding the best financial institute providing the MSME business loan. Lenders like Bajaj Finserv provides collateral-free loan with faster approval that help you meet your urgent working capital expenses.

How to Apply for a MSME credit?

Follow these basic strides to profit for a MSME credit:

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Sign into the site of your advance supplier and fill in the application structure by precisely filling in the necessary subtleties. An assigned agent from the advance supplier will reach out to you in the blink of an eye with every one of the potential changes and blends identified with your advance and the alternatives that could be the best fit for your prerequisites.

Post assurance of your qualification, you are needed to present the reports for confirmation. The necessary reports can be filtered and submitted on the web.

You can decide to go the disconnected course and solicitation the advance supplier to gather actual duplicates of the pertinent archives. When every one of the significant reports are gathered, they are sent to the pertinent group for check.

Post confirmation of the reports and endorsement of your advance, the advance supplier makes and offers the advance understanding. Post consenting to the arrangement, the assets are dispensed to the candidate’s record inside 48 hours.


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