Every global multinational corporation today started small. They would have been a micro, small or medium sized enterprise at some point in their journey. MSME (Micro, Small and Medium Enterprises) have no dearth of ambition or growth plans. The founders of such companies do not lack zeal, passion, dedication and discipline. Financial aid and technological know-how can help such enterprises to scale up.
If you are thinking, why should you do it and what are its benefits, we have written this post just for you.
Very few enterprises are aware of the benefits and the financial aid that is available to a Micro, Small, Medium Enterprise (MSME). The founders of such companies raise capital at very high costs as they rely on banks wherein, they have their current account or rely on local moneylenders for quick working capital loans.
Many entrepreneurs are not even aware of what category their enterprise falls in. You need not worry if you are one such entrepreneur. We have listed down the difference between Micro, Small and Medium Enterprises here.
MSME’s are classified into 2 categories:
Below is the classification in terms of investment:
|Manufacturing Enterprises||Rs 2,500,000||Less than Rs 50,000,000||Less than Rs 100,000,000|
|Service Enterprises||Less than Rs 10,00,000||Less than Rs 20,000,000||Less than Rs 50,000,000|
|Employee Strength||1 to 10||10 to 50||50+|
the MSMED Act of India enables incentive schemes and subsidies. It is important to register your MSME in order to obtain the benefits under MSMED act. The enterprise could be a sole proprietorship, partnership firm, limited liability partnership, private sector company or a public sector company.
The process is easy but if you still require convincing as to why it is required, the following lines would be interesting:
If you think the process of getting registered as an MSME is time-consuming and tedious, we would like to list down the steps to let you know how easy it is.
All you need to do is follow the steps mentioned below:
Do also glance through the documents required for registration as below:
Enterprises which register themselves as an MSME can avail many benefits ranging from lending options to cluster financing to the adoption of latest technology and quality management standard. Some of the key benefits include:
1. 50% Subsidy on Patent Registration: As an entrepreneur, you may be aware of the hefty fee that an enterprise must shell out to get a patent registered. Have you faced such an issue? With MSME registration, the patent registration will come to you at a 50% subsidy. Safeguard your IP today and accelerate your dream of becoming a renowned corporation of tomorrow.
2. Collateral Free Loans: An enterprise that is registered as an MSME can enjoy collateral free loans options which are facilitated through banks and NBFCs. Isn’t it great to avail a working capital loan or a credit line without having to put some of your assets at stake?
3. Exemption of interest on Overdraft: As a registered MSME, an enterprise can enjoy a 1% exemption on interest on an overdraft facility. Even a slight decrease in the cost of funds is extremely beneficial for small businesses and MSMEs are no different.
4. Reservation Policy: MSMEs are a labour-intensive group that generates a lot of employment and hence enjoy some special privileges from the government. The government has given exclusive rights to manufacture certain products to MSMEs. Under the Government Stores Purchase Program, the central government has reserved around 300 products exclusively for the MSME sector.
5. Technological Upgradation for MSME’s: The government, under the Capital Aid for Technological Upgradation Scheme, is enabling MSMEs to upgrade their equipment through latest technology. To do so, the government is encouraging more MSMEs to upgrade their technology and infrastructure and is enabling them to get low-interest loans from banks.
6. Protection against delayed payments: The biggest advantage of an MSME registration is the protection received from the government for delayed payments. If an MSME supplies a product or delivers a service, the buyer must pay on or before the date of payment. In case there is no date mentioned, the payment must be made within 15 days of acceptance of the product or service, failing which the buyer is required to pay a fine to the MSME registered company. This enables them to maintain free cash flow and keep bad debts to a minimum.
We will cover MSME Lending for private enterprises for you to get a gist of the loan options. The loan options available are:
1. Working capital loans: As the name suggests, this is required by enterprises which need instant capital to keep the business moving forward and to sustain their operations. They also need funds to bridge the gap between delivery of finished products and payment for the same. As an MSME, they can avail such loans at better terms and have a repayment tenure of 1-2 years. The lending is collateral free. The MSME enterprise should be in business for over a year and its annual turnover should be greater than INR 24 Lakhs. The documentation required for loan eligibility includes KYC documents, business registration certificate and the Current Account statement for the last 6 months.
2. Merchant Cash Advance: This is a form of lending wherein disbursal is quick. The MSME receives a lump sum amount required and the repayment is done daily as per the sales done at the organizations point of sale terminals. An MSME whose product or service is consumed by customer and instantly paid for through a point of sale terminal is aptly suited for such kind of loans. Do you think this is a great method? Visit Lendingkart and help us arrange capital at very good rates for you.
3. Line of Credit: Line of credit enables enterprises to have credit options at their disposal for meeting their daily expenses. While the enterprise has access to a pool of funds here, the interest is charged only when they avail a loan. The enterprise can enjoy a revolving line of credit and get a reduced interest rate for their loan. Are you looking for such loans? Know more by clicking here. While the loan is not backed by collateral, users can avail loans in the range of INR 50,000 to INR 1 Crore. The repayment tenure is 1 year.
4. Invoice Financing: Invoice financing, as the name suggests, enables MSMEs to raise capital against invoices that are yet to be cleared. It helps them to maintain their cash-flow better and manage day-to-day operations. In this model of financing, the lending organization takes a percentage of the invoice upon clearance wherein it covers for the processing fee, the principal and the accrued interest. Any enterprise which has been operational for more than a year and has a turnover of over INR 24 Lakhs can avail this type of financing. It should however have raised the invoice to a reputed corporate entity and should have valid invoices of work of at least INR 1 Lakh.
The government of India has been increasingly digitizing and accelerating capital raising processes to enable faster disbursals and help create more entrepreneurs. For MSME’s, the government is running a series of schemes as below:
PM MUDRA YOJANA:
The initiative provides funding to MSMEs whose lending requirements are less than INR 10 Lakhs. The PM Mudra Yojana takes a longer time to process but offers competitive interest rates and a relaxed repayment tenure. In the meantime, if you wish to avail an MSME loan, Visit Lendingkart.com.
SMILE is a Government of India initiative that works alongside “Make in India” and has a budget of INR 10,000 Crores to enable MSMEs to accelerate growth. They offer loans at 8% rate of interest and the repayment tenure is up to 120 months.
As you have read, it is beneficial to register as an MSME if you fall in the category in terms of revenue. The government has made it compulsory for large corporations to have a minimum set transaction with the MSME sector. All these factors will lead to great MSME growth. Register today to avail the benefits. If you need money right away as you register to become an MSME, please get in touch with us to avail a MSME loan.
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