While it may seem like financial loans or advances are available only to large companies or multinational conglomerates, most financiers have foreseen the increasing potential of micro, small, medium enterprises (MSMEs) and now offer plenty of loan options for them too.
In fact, one of the main advantages of an MSME loan is that almost always, it allows the borrower to get some extra funds without the burden of attaching any collateral. Such unsecured loans can be used by MSMEs to support their financial, infrastructural and other needs that may arise as they grow their business.
Let’s take a look at some of the benefits of a collateral-free loan that MSMEs stand to gain:
- Unsecured: As the name suggests, the most obvious benefit of a collateral-free loan is that MSMEs can procure this loan without giving any form of security or collateral. Of course, all small businesses must fit the requisite criteria to be eligible for such unsecured loans. But you’ll find that the criteria are quite easy to meet too. This collateral-free feature of an MSME loan is particularly important, because smaller businesses tend to be ‘asset light’ and can’t quite afford to have their equipment attached as collateral with a financier.
- Easy Access: For any startup or newly launched business, finding capital may be one of the biggest challenges. Banks or other financial institutions will likely need some evidence that you will be able to make timely repayments. If that’s not all, you will often be asked to provide some security as well. An MSME loan on the other hand, is often provided as a collateral-free loan, provided you meet the eligibility criteria set forth by the lender. This makes for easy access to funds. Also, there are various kinds of lenders who offer MSME loans.
- Low interest Rate: MSMEs should also consider taking loans specifically meant for them rather than a general business loan, because the MSME loan interest rate is often lower. Competitive rates certainly make these collateral-free loans more attractive.
- Retain Stake: In the course of doing business, every small enterprise will also need to meet the company’s financial needs. Finances are difficult to come by, and alternative lenders such as venture capitalists or angel investors would lend money in exchange for a stake in the company. The prospect of ceding management of their business may be unappealing to a small business owner. MSME loans are developed expressly to address such needs of micro, small & medium businesses. They are a great source of capital for entrepreneurs who are keen to retain complete stake in their company, without losing ownership.
- Flexible repayment: Along with a low MSME loan interest rate and the advantage of not requiring any collateral, small businesses also stand to gain flexible repayment terms with collateral-free loans. Such MSME loans are often taken for short durations to meet the immediate needs of the business. Without the worry of having any long-term commitment, businesses can focus on the efficient management of their cash flows and the diligent allocation of all available resources to ensure the production and operations are running smoothly. Additionally, when there is a sudden need for funds and the business is looking for ways to avoid liquidation, MSME loans function as a quick source of contingent funds.
All small businesses can avail of an MSME loan quite easily and nearly hassle-free. Once the basic documentation is provided and you can prove the business’ creditworthiness, lenders tend to approve and disburse an MSME loan quickly. If you approach reputed financiers, such as Bajaj Finserv, you will be able to get a collateral-free business loan in a hassle-free online process.
