6 Benefits of A Digital MSME Loan for Business Owners

02 May 2022

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MSMEs, or Micro, Small, and Medium Enterprises, contribute about 29% of the country's GDP in India. These small to medium scale enterprises often require financial aid to continue their business operations. This is where an MSME loan can prove to be quite helpful. With advancements in technology, digital MSME loans now make it even more easy for business owners to borrow capital. Plus, there are a lot of benefits of procuring a digital MSME loan. Let’s take a look.

What is an MSME business loan?

The MSME loan scheme helps individuals, small to medium business owners, and start-ups to avail of finance that can help to support their business operations. MSME loans are usually an unsecured type of debt and, therefore, one of the best ways to expand your business with improved cash flow. The funds can be used for various purposes such as expansion of business operations, fixing cash flow problems or for the purchase of new production machinery.

The tenure of these MSME loans is usually around 12 months; however, it can vary depending on the lender’s annual review. Most lenders usually offer an MSME loan amount between Rs 10 lakh and Rs 5 crore. The maximum loan amount that you can avail of through the MSME loan depends on your creditworthiness, financial stability, business size, and repayment capability. Furthermore, only businesses that fulfil the following MSME loan eligibility criteria can procure this loan:

• Micro enterprises

Micro enterprises are those businesses that have a maximum investment threshold of Rs 1 crore and a maximum turnover of Rs 5 crore.

• Small enterprises

Small enterprises have a maximum investment threshold of Rs 10 crore and a maximum turnover of Rs 50 crore.

• Medium enterprises

These businesses have a maximum investment threshold of Rs 50 crore and a maximum turnover of Rs 250 crore.

What are the benefits of applying for digital small business loans?

Previously, one would have to physically visit the lender’s office to procure an MSME loan. However, with the increasing adoption of technology by the banking sector, many lenders have digitised this process of borrowing for their customers. As a result, you can now apply for an MSME loan from the comfort of your home. There are many benefits of applying for a digital business loan online. Some of them are:

• Reduced turnaround time

Turnaround time is the period between the loan application and its sanction. During the initial stages of the loan application process, the lender has to collect and verify your information. This can take a lot of time in a paper-based loan application process. The turnaround time can be further delayed if you bring the wrong set of papers to the lender’s office. However, with the help of a digital MSME loan, you do not have to worry about submitting the wrong set of documents, as all the required information is made available to you on one portal. Furthermore, the digital loan application makes it easy for the lender to go through the information you have submitted and automates many internal processes. As a business owner, every minute counts. The time you save in lengthy loan application processes can be put to use elsewhere.

• Convenient loan application process

One of the major digital MSME loan benefits is that you are not required to physically visit the lender’s office to start your loan application process. All you need to apply for a digital business loan is your phone and a stable internet connection. The online application process is quite easy and can be completed in just a few clicks. Furthermore, contrary to the paper-based loan application process, you can apply for a digital MSME loan from anywhere and at any time that is desirable for you. Prominent loan providers like the Bank of Baroda offer an intuitively designed website that is equipped with all the information that you may need to get started with your digital MSME loan application process.

• No need to frequently visit the lender’s office

In a paper-based loan application process, you may need to visit the lender’s office to submit the required documents, correct any documentation errors, or complete your KYC. However, in an online MSME loan application process, you can submit the documents and complete your KYC directly on the lender’s website. Additionally, many internal processes that the lender follows are automated, like the verification of the information submitted by you. Consequently, this reduces the number of times you need to meet the lender physically and saves you a lot of effort.

• Paperless loan application process

Procuring any loan requires you to submit many different documents to the lender. However, one of the major benefits of digital loans is that you can complete the entire application process without going through a tedious paperwork process. This is because, in a digital loan application process, you can submit all the required documents to the lender through their offered website. This removes the need for you to maintain a complicated paper trail and makes the loan application process quite easy and swift. Alternatively, if you do not have soft copies of the required documents, you can simply scan the papers and upload the same on the lender’s website in pdf format or the jpeg format. Furthermore, to avoid any unwanted hiccups in the application process, ensure that the documents you upload are clear and can be easily read by the lender.

Let’s look at some more benefits of MSME loans in general:

• Relatively lower interest rates

The Indian MSME sector is a major contributor to the country’s economy. Hence, the government has taken several steps to further develop the MSME sector in India. MSME loans are one of the most affordable start-up business loans that are available in the market today. Many reputed lenders like the Bank of Baroda charge low interest rates on MSME loans. This significantly reduces your cost of procuring the debt. Lenders usually charge an interest rate between 7% and 12% on MSME loans. As a result, MSME loans are one of the cheapest forms of debt that are available in the market today for business owners.

• Unsecured form of debt

Unlike most business loans, MSME loans are an unsecured form of debt. This means that you do not need to provide collateral to the lender to receive credit. Due to this, MSME loans are one of the most accessible business loans in India. However, many lenders provide secured MSME loans as well if that is the type you seek. So, you can offer collateral to possibly reduce the cost of procuring the loan. The right type of MSME loan for you depends on the terms and conditions of the lender and your ability to repay the debt.

Digital MSME Loan from Bank of Baroda

Bank of Baroda offers digital MSME working capital loans to improve liquidity for your business. Loan amount starts from Rs 10 lakh and goes up to Rs 5 crore. With affordable interest rates and processing charges, you can now get access to the capital you need when you need it the most. Apply for your digital MSME loan on the Bank of Baroda website today and track loan status online too. For more information, reach out today.

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