As per the Ministry of Micro, Small and Medium Enterprises, the total number of MSMEs registered with the Udyog Aadhaar portal was 83+ lakh between October 2015 and December 2019.
Out of these –
- 74+ lakh were micro-enterprises, with 9+ lakh small and more than 35,000 medium enterprises.
The primary driving factor behind the growth of small businesses in India is easy to access to high-value financing. Both the government and private financial institutions offer unsecured business loans with favourable features and benefits.
NBFCs and fintech companies have been instrumental in business lending as they have made their application process entirely online.
Some of the features of business loans offered by these companies are –
- Disbursal within one working day
One of the primary factors behind the popularity of business loans is that these are disbursed within 24 hours. Borrowers usually receive approval within minutes of submitting their application.
Quick disbursal is a quintessential factor as it can be of immense help for businesses requiring urgent funding.
- Funding up to Rs.30 lakh
NBFCs usually offer up to Rs.30 lakh as business loans. However, the maximum amount that a borrower can avail depends on several conditions along with the applicant’s eligibility criteria.
- No collateral required
As the name suggests, a business loan is non-collateralized credits. Borrowers are thus not required to mortgage an asset to avail these loans.
- No restrictions on fund usage
Business loans can be used for any purposes deemed necessary. For instance, borrowers can –
- Consolidate debt – They can pay off all of their high-interest debts with this loan and repay only one affordably with easy EMIs.
- Expand their operations to a new city – Lease office space, buy new equipment, hire workforce, etc.
- Upgrade plant & machinery – Businesses can upgrade or buy new plant & machinery with these loans.
- Purchase raw materials – Firms can purchase raw materials and stock-up on inventory. It can be especially beneficial in case of seasonal demands.
- Make an advance to suppliers – Manufacturing businesses can also use the funds to pay an advance to their suppliers.
- SMEs and MSMEs contribute around 6.11% to the country’s manufacturing GDP.
Entrepreneurs can also use these credits as working capital loans and fund their business operations.
- Availability of pre-approved offers
Customers can apply for unsecured business loans without going through the necessary documentation process with options like pre-approved offers. Usually, these offers are provided to existing customers, thus eliminating the need for documentation.
NBFCs like Bajaj Finserv bring pre-approved offers to simplify the process of availing loans and help save time.
- Simplified eligibility criteria
Applicants only have to be between the ages of 22 and 55 years, while the business they run must have a vintage of 3 years to be eligible for these loans.
Additionally, lenders prefer customers who hold a minimum credit score of 750. A higher credit score improves a borrower’s standing to negotiate for favorable terms on the advance. Along with that, applicants should also have a sound credit history with no late payments or defaults.
The rate of interest and the loan amount may depend on a customer’s credit score and credit history.
- Only a few documents required to apply
The documents required for a business loan include the following –
- KYC documents (Aadhaar, Voter ID, Driving License, Passport, etc.).
- Proof of business existence (partnership deed, trade license, GST registration certificate, etc.).
- Audited balance sheet and profit & loss account statement for the last 2 years.
- Bank account statements for the past 6 months.
- Income tax returns for the previous 1 year.
Note that the above list of documents is indicative. Applicants may have to submit additional documents as required by the lender.
Fulfilling all the necessary eligibility criteria and submitting the required documents will improve the chances of a business owner to avail unsecured business loans.
These loans are one of the ideal ways for MSMEs and SMEs to boost their business and stay agile in this competitive market.
- There are more than 4.2 crores registered and unregistered MSMEs and SMEs in India.
- These businesses account for 95% of the country’s total industrial output.
NBFCs have made it easier and more convenient for small business owners to secure such loans. They can avail several types of advances under this category, like working capital loan, machinery loan, business loan for women, etc.