MSME Funding Options are Plentiful When You Know Where to Look

When it comes to MSME loans, there are plenty of options available for entrepreneurs and businesses in the country. There are several MSME finance options that you can check out and the growing demand for MSME loans in India has majorly been spurred by the improved business climate in India, the rising number of MSMEs across sectors and a major thrust on entrepreneurship.

Here are some of the options that you can consider while seeking a loan for MSME

• Business Loans: These are the commonly preferred funding avenues for MSMEs. There are working capital or unsecured business or MSME loans without collateral which many new businesses prefer. There are other business loans for short, medium and long terms respectively. This usually ranges between 3-15 years depending on eligibility. The MSME loan interest rate is dependent on the loan tenor. Business loans ensure access to quick, easy and essential funding at competitive interest rates. The application to disbursal cycle is swift and the loans can be repaid easily through EMIs in case the business is running decently.
• Short-Term Funding: There is an option called overdrafting in case a business has a current account. Short-term financing can be overdrafting where the business withdraws a higher amount of money in comparison to what it has previously deposited in the current account. There is another option which is letters of credit when the bank gives the assurance to the seller for receiving the amount that is deposited by the buyer. Bank guarantees are also ways to raise funding along with priority sector loans.
• Bill Discounting: You can go for an option where funds are provided on the basis of the credit sales of the business. The financial institution will be discounting the bill and offer funding to the customer. The customer, on the other hand, needs to furnish invoices of transactions with customers and third parties. There is no collateral required in this case.
• Loan Against Property: Loans against property are a common way to raise funding as far as MSMEs are concerned. There are several such loan products available where the residential/commercial property is offered as collateral for the loan. The amount sanctioned can be up to 50-60% of the market value of the property. The interest rates are quite reasonable and there is fast processing and approval. The tenors are usually longer as well.
• Angel Investors: These investors who wish to invest in MSMEs and they can often set up investment funds, groups or networks for selecting investment proposals. In return for their funding, they will seek certain equity in the business. Investors also play an advisory role for the business and its founders.
• Venture Capital: Venture Capitalists make investments in businesses in order to obtain higher returns. They offer invaluable advice and experience as well. They also look for MSMEs which are scaling up and entering into newer fields of operation or diversifying their portfolios. Venture Capitalists look for strategic equity in the business and the investment amounts are higher in this case.
• Peer-to-Peer Lending: Business funding can also be availed through the peer-to-peer lending network. Loans are easily available and the interest rates are also comparatively lower. There are quite a few advantages of peer-to-peer lending.

Also Read: MSME Finance: Opportunities and Challenges