4 MSME Business Loan Myths Busted

Business loan interest rate

MSME Business Loans are a viable alternative to costly loan options. These loans are primarily collateral-free and charge low-interest rates. Moreover, the repayment term is high enough to allow convenient repayments. 

However, despite being one of the most feature-rich loans, borrowers often get swayed by some myths about MSME loans for new businesses. This article busts the top-4 myths about MSME Business Loans to help you make informed decisions.   

Myth 1 – I Cannot Apply for an MSME Business Loan if My Credit Score is Low

Since MSME loans for new businesses are mostly collateral-free, lenders need the borrower to have a high credit score. However, while the credit score is a critical parameter, it is not the only factor determining Business Loan eligibility. 

Besides your credit score, a lender checks your business plan, financial condition, profit and loss, cash flow, debt, and business legacy. And if all other parameters are okay, the lender may show leniency towards the credit score. 

Hence, if your credit score is below par, you must maintain a healthy business profile and enough cash to prove that you are capable enough to repay. 

Myth 2 – The Interest Rate of MSME Business Loan is Too High

This is a myth since the interest rates of MSME loans for new businesses are some of the lower in the industry. Business loan interest rate depends on multiple factors, including the borrower’s creditworthiness, loan history, business history, profit, loss, etc. 

Myth 3 – Online Lenders Are Not as Safe as Brick-and-mortar Lenders

Online lenders often offer the best rates since their inventory costs are lesser than brick-and-mortar lenders. Digital lenders usually do not have any assets besides a registered office. 

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In contrast, brick-and-mortar lenders have to pay a considerable amount for maintaining their physical assets and employees. The asset-light model enables digital lenders to offer attractive rates and features on MSME Business Loans. 

So, the idea that online lenders are not as safe as brick-and-mortar lenders are ill-founded. However, before choosing an online lender, ensure that their business is approved by the Reserve Bank of India (RBI). 

Myth 4 – The Amount of MSME Business Loan Must Be High

This myth is perhaps the most popular but incorrect. MSME Business Loans are designed to cater to small and medium business enterprises. This is why the minimum loan amount starts from INR 5 lakh, and the maximum loan amount may go up to INR 50 lakh. 

So, you can choose the loan amount depending on your needs and pay conveniently before forty-eight (48) months in easy instalments. 

Conclusion

While the four myths mentioned above about MSME loans for new business are the most common, there are also some other myths. However, like the four myths discussed here, all other myths are baseless and akin to folklore. So, brush aside the myths about MSME Business Loans and apply for one now to scale up your business.  

By Hammad Hassan

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