Kickstart Your Startup Growth with MSME Loans

Micro, Small, and Medium Enterprises (MSMEs) are the pillars of the Indian economy. According to the Ministry of MSME, as of FY 2023-24, India has over 63 million MSMEs, accounting for 30% of India's GDP and around 50% of India's total exports. Even though small firms and startups are engines in pulling the economy, they are largely financially stressed. One of their greatest concerns is probably going to be the lack of working capital, which can hinder the growth of their operations, cash flow, and order fulfillment.

That's where MSME loans for startups are used. It can enable small businesses to continue running and expand their business.

What is an MSME Loan for Startups?

MSME loans for startups are financing products that facilitate the ease of startups and small businesses in procuring the money needed to fund working expenses, acquire equipment, smoothen cash flows, or expand business. They are different from regular loans as they are specifically designed for micro, small, and medium enterprises so that they have instant disbursal, simple repayment packages, and collateral-free facilities.

Why Acquire an MSME Loan for Startups?

Startups, particularly in their early days, are subject to various issues, including:

• Limited access to finance
• High cost of operations
• Unpredictable cash flow
• Large orders to be completed in the shortest time
• Equipment and technology upgrades

Finance shortage may lead to businesses missing opportunities to seize the desires of the clients, and MSME loans bridge this gap by providing a cash injection of adrenaline at the point of highest necessity.

Popular MSME Loan Schemes for Startups

1. Start-up Business Loan

A start-up business loan is provided to finance the working capital of new ventures to meet operational expenses, business expansion, or the acquisition of assets. The loans help in sustaining business operations without dilution of ownership.

Key Features:

• Loan size between ₹50,000 and ₹5 crore
• No collateral is required in most cases
• Repayment tenure between 1 year and 5 years
• Minimum documentation and a quick sanctioning process

2. Startup Loan Without Collateral

The biggest challenge for startups is raising capital without mortgaging assets as collateral. A startup business loan without collateral allows business owners to get funds without sacrificing personal or business assets.

Key Features:

• Completely unsecured loan, i.e., no mortgaging of assets required
• Immediate approvals based on financial position and business plan
• Higher interest rates because of higher lender risk
• Short to medium-term repayment duration, usually up to 36 months
• Available with banks, NBFCs, and fintech lenders

3. Startup Working Capital Loan

A startup working capital loan is designed specifically for the financing of day-to-day business costs such as salaries, rent, raw material purchases, and vendor advances.

Key Features:

• ₹1 lakh to ₹2 crore loan size
• Designed specifically for short-term cash flow management
• 6 months to 2 years tenure
• Available in the form of overdrafts, invoice financing, and revolving credit
• Suitable for seasonal fluctuation in demand

Tips to Use an MSME Loan for Startups for Maximum Business Development

1. Invest in Business Development

The availability of funds will enable startups to venture into new markets, hire professional workers, and purchase technology.

2. Cash Flow Management

MSME loans provide an immediate cushion for financially troubled companies. It avoids delays in payment and business shutdown.

3. Buy Inventory and Equipment

For businesses selling products, there is a need for enough inventory. Procurement on a bulk basis can be achieved with the assistance of MSME loans, which avoids procurement expenses.

4. Credit Profile Improvement

Timely repayment of MSME loans enhances the credit score, thereby it easy to obtain big loans in the future.