Top 5 Challenges of MSME Loans That You Should Know

The MSME sector is the biggest employer in India, but unfortunately, they face a lot of hassles when applying for loans to expand their business. While the Government is taking a lot of initiatives to promote MSME loans, a lot more is required. If you are an aspiring MSME business owner, you need to know the challenges faced by the sector.

Here are the top 5 Challenges for MSMEs:

  • Lack of Financial Literacy

MSMEs need loans to meet their working capital requirements. Due to inadequate financial knowledge, they end up taking small business loans at high-interest rates. They don't know how to apply for an MSME loan online. They are unable to repay the loans on time, and this lowers their credit scores. 

While most small business owners understand their product or service well, their lack of information about financial technology used by NBFCs leads to applications for the wrong loans. 

Online platforms offer instant business loans to MSMEs at competitive rates, and small business owners should be aware of this. There are Government initiatives like 'Bharat Craft', that help MSMEs by connecting buyers and sellers. 

  • Complicated Application Process

When it comes to 'Ease of Doing Business', MSMEs face lots of challenges. There are 12 stages that an MSME needs to clear before it can start a business in certain states. While you can register a company faster, it still takes longer for MSMEs to enforce a contract. 

These regulations and approvals need to be simplified to ensure that MSMEs get faster loan approvals, construction permits, and enforcement of contracts. It would help businesses get raw materials on time, access new technologies, or learn new skills. 

  • Trust Issues

Banks still don't trust MSMEs since they doubt their repayment capacity and the loan amounts are small. Banks impose higher interest rates and lower repayment periods making it difficult for MSMEs to avail of bank loans. The stricter msme loan eligibility criteria discourage business owners from taking loans. 

The poor credit rating of MSME owners puts the min the 'high-risk' category for banks,  affecting their chances of getting loans at competitive rates and repayment periods. Online lenders offer more flexible repayment options, but a good credit rating is critical. 

  • Lengthy Disbursement Process

Along with strict eligibility criteria, MSME applicants need a long list of documents for their loans. There is a long waiting period before the funds get credited.  

With online financing solutions, MSMEs can get instant business loans with minimum documentation. The online processing time for the loans is also shorter, and you can get a loan within 24 hours of its sanction. You can check the status of your loan online. 

  • Collateral Required

The lack of trust leads to collateral demanded by traditional lenders. Most MSMEs don't have the property or other assets required to meet the collateral requirements of lenders. Since small business owners can't provide the security lenders need, they can't apply for business loans.

Online lenders provide collateral-free loans to MSMEs that make it easier for them to stay in business. You can get unsecured loans up to Rs. 50 lacs from these online lenders. There are tailor-made solutions according to the needs of every business. 

Final Thoughts

Knowing your product or service is one part of the business. To be successful, you need to understand the latest funding methods for MSMEs. Go online and find out about the different loans available for MSMEs.

It was difficult for MSMEs to obtain loans earlier, but now with portals, they can get the loans they need at the right time. The online process is hassle-free and the documents required are minimal. You don't need any collateral to apply for these loans and also enjoy a flexible repayment period. 

It takes just 24 hours for the loan to be disbursed after sanction provided the documents are in place. Apply now and take your business to the next level! 


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