In India, the Micro, Small & Medium Enterprise (MSME) sector comprises around 63 million firms which employ around 11.1 million workers. This sector contributes 27% of the GDP and is one of the key sectors for employment in the country.
It is also expect that by the end of 2022, there will be an increase in revenue from this sector by 15% to 17%.To meet the working capital needs, MSMEs need funds and one of the best solutions to get instant money is MSME loans for your business. These business loans are usually unsecure and require no collateral. These loans usually come with simple eligibility criteria and require you to submit just a few documents. However, before you finalize the lender of your choice, you must consider the MSME loan interest rate so that you can plan your repayment in a better way.
Finding the right loan option with an appropriate MSME loan interest rate for your small business will depend on several factors. You should be aware of them before applying for a loan. Read on for more information.
The credit score
A credit score tells lenders how likely you are to keep up with repayments. Credit scores range from 300 to 900, and the higher your score, the better your chances are of obtaining a low-interest MSME business loan. Whether you are approve for an MSME loan or not is almost always determine by a look at your credit report.
Your ability to create a positive impression on your lender and to present yourself as a credit-worthy borrower is directly correlated to the health of your credit score. High credit scores may lead to bigger loan amounts and reduced interest rates.
Nature of your business
The nature of your business is also a significant element in determining your MSME loan interest rate. Lenders choose companies with a good reputation and a clear legal status.
When determining your interest rate, lenders consider your business’s performance, experience, and size. These factors tell the lender about your business health eventually determining your repayment capacity.
Business vintage
Having a few years of industry expertise is a big factor in securing a loan from a financial institution. A company with a good reputation and a lot of expertise is less likely to default on a loan.
For example, your company must have at least three years of experience operating in the industry to qualify for funding from a leading lender. The interest rate on an MSME loan is likely to be lower if you have been operating your firm effectively for a few years already.
The balance sheet of the company
The amount of money your business makes each year also greatly affects the interest rate on your business loan. If your firm has a large turnover, you may have to pay a reduce interest rate, and you can save a lot of money on your overall interest outlay.
Lenders will look at how much money your business makes as a condition for giving you an MSME business loan and as a factor in figuring out how much interest rate you will have to pay.
You may not be able to get a loan from the lender if you don’t have enough revenue pouring in.
Once you fulfil the require eligibility criteria, you can apply for an unsecure MSME loan and get funds up to Rs. 45 lakh. One of the reputed NBFCs, Bajaj Finserv, offers hassle-free unsecure business loans for MSMEs that come with simple eligibility and minimal documents.
Read More:- Renewal process of a lapsed bike insurance policy
