A business loan cannot be availed for purchasing a land with the purpose to sell it after a decade or so when the real estate values appreciate with time and infrastructural development
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Business loans v/s MSME Loans
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In a market like India one can find numerous categories of loans and with huge variation in terms and conditions of these services.
A business loan is provided to those enterprises/businesses who generate monthly income, have cashflow and contribute towards employing new people into the business. A business loan cannot be availed for purchasing a land with the purpose to sell it after a decade or so when the real estate values appreciate with time and infrastructural development.
An MSMEloan is provided to Micro, Small and Medium enterprises in association with the Ministry of MSME (a government organization) where the business owners or the entrepreneurs get a plethora of benefits from the schemes provided with in the limits of MSME ministry. The government of India has launched MSME in 2007 and since then have taken the initiative to provide as much support as possible to startups and other MSMEsin order to address unemployment concerns and embrace technological and digital economy trends.
MSME Classification
MSME (Micro, Small & Medium Enterprises) are classified in the following two types.1)those who produce or manufacture the products and 2) Who provide service.
Composite Criteria: Investment in Plant & Machinery/equipment and Annual Turnover
Classification - Manufacturing Enterprises and Enterprises rendering Services
Micro Businesses - Not more than Rs.1 crore and Annual Turnover; not more than Rs. 5 crores
Small Businesses- Not more than Rs.10 crore and Annual Turnover; not more than Rs. 50 crores
Medium Businesses- Not more than Rs.50 crore and Annual Turnover; not more than Rs. 250 crores
This explains the categories of MSME and the slabs which will change their categories. The total valuation consists of all the equipment, machinery and resources of the plant/factory/business.
Benefits of MSME
Businesses would obviously want to know the benefits involved in taking the MSME loan instead of the traditional channels which they are conformable to since decades.
MSME offers tons of benefits over the traditional business loans provided by any bank or non-Banking financial company. The below are some of the benefits of MSME.
Tax Exemption:Government has proposed a lot exemptions over the taxes to ensure strong sustenance of the business with the intention to improve the economic conditions as the businesses grow gradually with time. The tax exemption allows startups to include the tax levied on the interest amount of the business loan to be included in the business expenses and file the same with the bank to get the amount credited. It also decreases the Net income which will reduce the taxable amount.
Tax Exemption for initial 3 years: Startups also have one more advantage from the ministry of MSME where they are exempted to pay 100% of the taxes for the first 3 years of the business that should be of immense help to stabilize the business in the beginning stage where the marketability and existence is not in a good position.
Quick Funding assistance: MSME have defined procedures and protocols to ensure the funding rounds are processed as quickly as possible to ensue businesses have the funding in times of exigency and not cause any unnecessary hindrance.
Technical and Economic Counselling: MSME businesses and startups also get the enrich a lot of technical, advertising, economic and financial guidance to better manage their finance and flourish in the market. This is totally free of cost and is provided by the industry experts.
Fast startup exit:A first ever initiative by the government to process a quick startup exit for entrepreneurs to encourage others and create a startup friendly environment in the country.
All in all, MSME Loans have played a tremendous role in improving the unemployment concern of modern India and at the same time increasing the cash flow in the economy. The biggest benefit of MSMEs is the shift in mindset of the emerging entrepreneur to contribute towards a income generating business instead of investing in an asset classes and looking for a long term benefit which does fulfills the businesses/entrepreneurs goals and objective but has adverse effects on the economy as the regular income generation, cash flow, employable resources are not part of the business.
Fees and Interest Rates for MSME Loans
- Rate of interest – 17% p.a. onwards
- Processing fees - Up to 2% of the loan amount (plus applicable taxes)
- Document/statement charges - Download your e-statements/letters/certificates at no extra cost by logging into the Customer Portal.
- Statement of account/ repayment schedule/foreclosure letter/no dues certificate/interest certificate/list of documents - You can get a physical copy of your statements/letters/certificates/list of documents from any of our branches at a charge of Rs.50/- (inclusive of taxes) per statement/letter/certificate.
- Bounce Charges – Up to Rs.3000 (inclusive of applicable taxes)
- Penal interest (applicable in case of non-payment of monthly instalment on/before the due date) - 2% per month
- Document processing charges - Rs.2000 + applicable taxes
FAQs
- What is MSME?
MSME is a government body that was founded in 2007 to empower businesses and entrepreneurs with necessary tools to grow their businesses resulting in increased employment, cashflow, income generation and GDP.
- What are the common challenges for MSMEs?
The biggest challenge for an MSME is to acquire some percentage of the initial capital form own sources or other income sources as the MSME Loans do not provide 100% financial assistance to the business/startup. Secondly, ensuring that the business/idea gets all the clearance checks and is a valid technologically innovative idea and pass the eligibility criteria is another biggest challenge any MSME might encounter.
- What is the biggest difference between an unsecured loan and a secured loan?
The rate of interest is the biggest difference. Unsecured loans usually have a very high interest rate compared to secured loans. Also, the amount of loan one can avail has an astounding difference as lenders provide high loan amount depending on the collateral or security provided by the borrower which is not the case in unsecured loan.
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