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5 Challenges Entrepreneur Face When Availing MSME Loan

by Vishwajeet Kumar

In the business world sanction of loans is a very common term. Now with the help of the government’s Udyog Aadhar, every businessman can apply for a loan and have the benefits along with it. There are various types of loans available related to business amongst them one is the MSME loan.

What is an MSME?

MSME Full Form is Micro, Small, and Medium Enterprise. This term was introduced by the government of India through an agreement with the micro, small and medium enterprises development (MSMED) Act of 2006. This act states that MSME is for the enterprises which are involved in the production, processing, and preservation of goods and commodities.

What is an MSME loan?

MSME loans are unsecured loans that are offered by several financial institutions to meet the needs of various business-related expenses on credit. These types of loans come with specific eligibility criteria which the appliance must meet to get permitted for the loan. MSME loans are defined as loans for business enterprises for support in terms of finance in infrastructure and other areas by the Indian Government and RBI.

Top 5 Challenges that Entrepreneurs Face While Applying for MSME Loans

The new government policies and initiatives are certainly empowering the credit gap but also are breeding new challenges for securing MSME loans.

Challenges faced while availing MSME loans are:

The lack of a good business plan

Most of the small business owners lack the knowledge of project plan presentations that will help attract lenders. Every financial institution requires to see the plan to assess MSME registration and to check the owner’s ability to repay the loan.

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Hence without a proper presentation of a detailed project plan can prevent you from applying for the loan. But for most small business owners presenting a well-organized project plan is stuff that every owner should work on so that we can easily avail of MSME loans.

The inefficient management of cash flow by entrepreneurs

Most small business owners struggle with their management of receivables and payables. This pool cash flow management makes it difficult for entrepreneurs to apply for loans and it can also result in higher interest rates than usual.

Hence every small business owners and entrepreneurs should monitor the cash flow regularly to prevent them from any difficulties during loan sanction. Moreover many banks believe that MSME’s do not have the capacity for repayment resulting in strict regulation on these businesses.

A longer processing time for loan sanction

Despite the smooth measures taken by the RBI to ensure that loans for the MSME sector are encouraged, many traditional institutions still have a lagging approach that requires a lot of paperwork making the approval process lengthy and hectic.

To be on the safe side look for funding institutions that require less documentation and have an online application system. This reduces the longer processing time for loan sanction.

Due to the lack of security and collateral of small business owners

Small business owners and entrepreneurs usually have less valuable assets to offer as collateral to financial institutions which makes it difficult to secure the loan process. Often strict collateral requirements come in the process of availing MSME  loans.

As a result, many small business owners and entrepreneurs prefer unsecured business loans from lenders to avoid collateral requirements.

Many conventional lending institutions are also not willing to lend funds to startups and small business owners. Therefore to apply for MSME loans seek collateral-free loans from modern financial institutions.

Unaffordable interest rates provided

At times the interest rate of the loans is impeccably high which becomes a huge problem for small business owners. Hence choosing the option of long tenure the interest rates and EMI can below the long-term interests cost higher than regular interest. The interest rates are a very concerning area for the entrepreneurs while availing of the MSME loan.

Micro, small and medium enterprises have proven to be a strong supporter of the Indian economy by spreading various industries and contributing to the employment generation.

In the wake of the digital India mission, many startups and entrepreneurs are gaining advantage from Government support. MSME loans are easily available and it is supporting the growth of small businesses but the problems faced are quite thinkable.


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