MSME/PSB Loans Within 59 Minutes: is it really possible?
MSME/PSB 59 Minutes Loan
The government announced a new scheme for small and medium business owners as a festive gift, ‘business loans / MSME loans within 59 minutes. The announcement had the business world buzzing with excitement as the scheme promises business loans up to `1 Crore. However, little else was clear about the due process to be followed for getting these quick business loans. In this post, we analyze the feasibility of the latest scheme and the hurdles one might face during the loan approval process. Furthermore, we will also have a look at other government initiatives for funding MSMEs and startups, and compare their performance to NBFC loans in India.
Details of the ‘59 Minutes Loan’
The loan being offered under the government scheme is mainly a working capital loan of 10 lakh up to 1 Crore. The minimum business loan rate of interest offered is 8% but it may vary based on the applicant’s credit score, business activities and other factors that determine the financial health of an MSME. There are no collateral requirements for this loan, hence making it an unsecured business loan – similar to the working capital loans offered by NBFCs like Lendingkart. Processing fees and charges are pegged at 1000 plus applicable taxes for borrowers who are accepted for lending.
Now, coming to the main highlight of the ‘59 Minutes Loan’ scheme. Participating banks offering products under the scheme are required to provide approval in principle to the borrowers whose proposal matches their product. While this approval will be given within 59 minutes, the actual disbursal of the loan will still take 7-8 working days.
Documentation required for the ‘59 Minutes Loan’
- Last 6-month bank statement in PDF format for all business-related accounts.
- e-KYC paper i.e. a digital version of know your customer paper.
- Income tax returns for the last 3 years in XML format including income tax codes and e-filing details.
- GST certification is necessary and the borrower has to provide his / her GST ID and password.
- Ownership certificates / details of current ventures of the applicant.
- Personal and educational details of the applicant.
The application process for ‘59 Minutes Loan’
The application starts with a ‘new user’ registration on the official website, https://www.psbloansin59minutes.com/home.
- Step 1: Complete the sign-up process by entering your name, email and mobile number. Click on ‘get OTP’ to verify your credentials.
- Step 2: Enter the OTP received on your phone and agree to the terms and conditions before clicking on ‘Proceed’.
- Step 3: The next screen will ask a few basic questions which you need to answer in ‘yes’ or ‘no’ by selecting the corresponding radio selection box. Click proceed again to continue to the next step.
- Step 4: Now, you will be asked to input your GST details, such as GST number and password, followed by income tax information. Here, you can either upload the statements in XML format or login with your ITR details such as PAN and date of incorporation.
- Step 5: This step involves the upload of your past 6-month bank statements in PDF format. You can also login with your net banking credentials and allow the lenders to access the financial statements.
- Step 6: Here, you provide the details of directors, proprietor and company address.
- Step 7: Now select the purpose of your loan and provide the details of any previous/existing loans taken by your business.
- Step 8: Select the bank through which you want your loan to be processed. The interest amount may vary from bank to bank.
- Step 9: Pay the 1000 convenience fee, plus taxes for approval.
- Step 10: Download your approval letter, pending further due diligence by the loan-providing bank.
Potential pitfalls to be faced by the ‘59 Minutes Loan’ scheme
The thing to note here is that the ‘59 Minute Loan’ scheme is not the first initiative by the current government to ease business finance. A similar fast-track business loan scheme called the Pradhan Mantri Mudra Yojna (PMMY) is already in place. The PMMY is also backed by public sector banks and offers loans up to ₹ 10 lakh to MSMEs and startups. However, a closer analysis of the scheme reveals some major bottlenecks and drawbacks of government-run financial schemes for small businesses in India.
For example, since the Mudra program was started in 2015-2016, a whopping 4.68 lakh crore has been disbursed to 9.9 crore loan applicants. While the sum of loans given is impressive, simple math tells us that the average amount per application is just 47,249. So, the question that needs asking is, can anyone set up a successful enterprise with less than 50,000?
While someone may be able to set up a shop or similar retail business for that amount, keeping it up and running is not possible without some minimum working capital expenditure. Thus, the amount of money offered under the Mudra program is not sufficient for startups and MSME funding at all.
Moreover, the CBI is already investigating a senior Punjab National Bank Official for fraud after his PNB branch approved ₹ 62 lakh in lieu of 26 loan applications under the Mudra program. The charges as quoted in the CBI complaint are “without conducting meaningful pre-inspection or physical verification of spot of business or residence and without ascertaining end use of the loan amount or creation of assets from the loan amount”.
Now, isn’t that the Mudra program? The PMMY was meant for offering quick business loans without collateral requirements and stringent check and balances. Which in turn makes the ‘59 Minutes Loan’ scheme susceptible to unforeseen hindrances. Since the new scheme offers unsecured business loans up to 1 crore, bank officials are going to be even more cautious in scrutinizing loan applications. Also, similar to the Mudra scheme which was a refinancing scheme, for which the funds were provided by banks, NBFCs and MFIs under pressure from the government, the new scheme also adds the burden of funding loans on public sector banks (PSBs). Thus, given the NPA crisis faced by almost all PSBs, the 7-8 days loan disbursal policy also seems a little far-fetched right now.
Comparing the ‘59 Minutes Loan’ scheme with NBFC loans
The concept of fast business loans is not a new one and the latest government scheme is just an extension of same-day loan approvals being given by NBFCs like Lendingkart, albeit with some sugar-coating. Some of the features being touted by the new loan scheme, such as an online portal for loan application and digital submission and verification of documents, are already in use by NBFCs like Lendingkart. Moreover, the simplicity and steps involved in the loan application process are also fewer for NBFC business loans.
Here are some of the key differences between the ‘59 Minutes Loan’ scheme and NBFC business loans.
- Application Process: Both use an online application process, needing users to register with name, email and phone numbers.
- Documentation: The government’s business loan scheme requires the submission of a 6-month bank statement, 3-year income tax filings, GST details (including your password) and incorporation certificates along with personal, educational and financial details of the owner/partners/directors. On the other hand, Lendingkart offers loans based on 6-month bank statements and 2-year ITR returns if your revenue is less than 60 lakhs. It is not mandatory to have net banking and Lendingkart does not ask for ITR and GST in the case of Green Zone.
- Loan Amount: The ‘59 Minutes Loan’ scheme offers loans from 10 lakh up to 1 crore whereas Lendingkart has a wider scope in terms of funding with business loans ranging between 50,000 to 1 crore.
- Loan Disbursal: If all details check out, the government’s loan scheme offers business loans within 7-8 days, which is not a lot quicker than the existing loan products offered by banks. On the other hand, Lendingkart promises the disbursal of loan funds within 3-days’ time once your application is verified.
- Additional Features: Both, the government’s MSME loan scheme and NBFC loans are unsecured business loans. However, Lendingkart offers several additional advantages such as top-up loan, renewal upon full repayment, zero evaluation charges and no pre-closure charges. Furthermore, Lendingkart also has a dedicated mobile app, customer support and social media presence to assist customers in real-time.
|Particulars||NBFC Loans||59 Minutes Loan||Difference|
|Time for Approval||Same Day Approvals||Within 59 Minutes||Same concept|
|Time for Disbursal||Within 3 Days||8-10 Days||NBFC loans are faster by almost a week|
|Loan Amount||50,000 to 1 Crore||10 Lakhs to 1 Crore||NBFC loans have a wider window that increases the possibility of getting a business loan|
|Documentation||Minimal Documentation||Personal, Educational and Financial documentation required||NBFC business loans are easier to get|
|Process||FinTech process||Bureaucratic process||NBFCs use IoT technologies to minimise delays in loan disbursals|
|Funding||Self-funded||Available from selected public sector banks||NBFCs have ready cash available for disbursals whereas PSBs are already burdened by an NPA crisis|
|Flexible EMIs||Yes||As per bank rules||NBFC loans come with bi-weekly and monthly EMI options for faster and easier repayment|
|Prepayment Policy||No Charges||As per bank rules||NBFC loans offer hassle-free early repayment in full|
|Auto-renewal||Available||Not available||NBFC business loans offer better revolving credit facility than bank loans|
Advantages of NBFC business loans
In its current form, the new scheme by the government is a tough sell once you go beyond the face value. Here are some of the things which an NBFC business loan still does better than the ‘59 Minutes Loan’ scheme.
- NBFC loans are self-funded whereas the government’s scheme relies on SIDBI and PSU banks – State Bank of India, Bank of Baroda, Punjab National Bank, Vijaya Bank and Indian Bank. Hence, the NBFC business loans retain the advantage of being fast and free from bureaucratic delays.
- The starting value of ₹ 50,000 gives NBFC business loans another advantage as it increases the probability of getting a small business loan for an applicant who may not be able to service a loan worth 10 lakh, which is the minimum under the government’s proposal.
- In essence, the 59 minutes loan approval time is similar to same-day loan approvals, as the condition of ‘pending verification’ applies in both cases. However, where NBFC business loans from Lendingkart are disbursed within 3 days of verification with attractive interest rates, the same process takes 7-8 working days under the government scheme.
- NBFC loans offer the facility of revolving capital through products like business loan renewal and zero pre-payment charges, making them more suited for working capital finance. On the other hand, fresh loans under the government scheme will have to follow the same application, approval, processing and disbursal cycle all over again.
- NBFCs like Lendingkart also offer monthly and bi-weekly EMIs to help businesses with extended invoicing cycles. This flexible EMI feature may not be a part of the government’s MSME finance scheme from the onset.
- The questionable success of previous government financing schemes also puts NBFC loans in perspective, where companies like Lendingkart Finance are now offering business loans across India.
While we should laud the government’s efforts to make India more business-friendly, only time and numbers will tell the real story here. The political detractors of the government were quick to point out that the new MSME finance scheme has all the trappings of a same-day approval loan and that it is merely a pre-poll sop. Even several bankers have questioned the feasibility of the ‘approval within 59 minutes’ approach as the public sector banks which are expected to shoulder the burden are still reeling from a bad loan crisis and the shadow effects of demonetization. The most concerning part of the scheme remains the actual turnaround time for the business loan. The disbursal time of 7-8 working days can easily stretch up to 8-12 days when you count weekend holidays and public holidays. So, in reality, getting a business loan from the bank will still remain a cumbersome task.
On the other hand, NBFCs are offering a wider range of loan options and complementary products and services like auto-renewals and zero penalty pre-closures, which are hard to ignore. Add to that the possibility of getting a business loan within 72 hours and the government’s proposal loses some of its sheens. So, when compared head-on, NBFCs like Lendingkart are still offering better value to their customers until the time the government scheme matures.
So, in the end, answering the question ‘is it really possible to get a business loan within 59 minutes?’. Unfortunately, the answer is no. You can get a business loan approval within 59 minutes, but all it means is that the banks refinancing the government’s scheme will follow their usual application and verification process after that. The actual loan will only be given after the process is complete, which can take up to 12 days. You can, however, get a business loan within 3-days by signing up on Lendingkart’s website or mobile app.