Things to Consider Before Applying for Micro Credit Loan in India

Several startups and SMBs in India face the biggest challenge of accessing financing sources. There was an introduction of microfinance to solve their problems. Microfinance is of different types, ranging from micro-savings to microinsurance. 

However, the best one of them is the micro credit loan. The term- microloan has several interpretations. But, the most important thing is that it is useful for growing your small business. Before applying for a cash credit loan, you have to learn some relevant facts.

What is a microloan?

Microloan refers to a short-term financing option for micro-entities. The major purpose of the loan is to provide working capital to micro-entrepreneurs. Micro-financing companies also have an aim to promote women’s entrepreneurship. There are some other reasons for offering the microloan. This loan enables the Self-Help Groups to establish their business and ensure better economic conditions of the country. Thus, the availability of the loan will help with the socio-economic development of the country.

Who can apply for microloans?

Microloans have become highly popular among-

  • Traders
  • Self-employed
  • Small retailers
  • Sole proprietorship
  • Manufacturers
  • Consultants
  • Startups
  • Women entrepreneurs
  • Unemployed persons
  • Employees with minimum wages

By availing of the micro-credit loan, you will be able to invest in your business. The major facts about the loan are-

  • The microloan borrowers are mostly low-income citizens. Therefore, they have limited and minimal access to conventional financial solutions.
  • As the borrowers get a small amount of loan, it is called a microloan. 
  • The microloan tenor is very short, and it may be from 12 to 24 months.
  • You do not need collateral for the microloan.
  • Complicated documentation is not essential for this type of loan. Less paperwork is one of the advantages for loan applicants. You can apply for the cash credit online and get approval within 24 hours. 
  • You need to repay the loan at a high frequency, like weekly and bi-weekly.
  • You have an opportunity to withdraw money at any time.

Types of microloans

Microloans available in India are of different types-

  • Income Generation Loans- You can apply for the loan when you have a joint liability group. Micro enterprises get a chance to obtain this loan for their business development.  
  • Emergency loan- The major feature is that it is an interest-free loan. However, the loan amount is very small, and the repayment term can vary with borrowers.
  • Mid-Term Loans- You need to repay the loan within 25 weeks. Moreover, when you have obtained a reasonable amount of income generation loan, you can choose this financing option as the mid-term loan.
  • Individual Loans- These loans need collateral, although you can apply for a higher amount of loans. The loan provider will analyze your cash flow and business before disbursing the loan. 

Documents you need for the microloan

The major documents needed for the loan are-

  • Filled application form
  • PAN card
  • Ration card
  • Office address proof
  • Passport-size photos
  • Certified MOA/ AOA copies
  • Past repayment details
  • Audited financials 
  • Bank account statements 
  • Professional qualification proof

How to make the right use of microloans?

As you have secured the loan, you need to use it considerately for your business. For instance, you may use the amount for inventory, payroll, equipment, machinery, and furniture.  During the slow months, you can cover the costs with the loan. Moreover, some businesses invest an amount in marketing campaigns.

A microloan is also useful for paying off personal debts. But, you must differentiate your business debts from personal ones. The strategic use of the cash credit loan will make your business successful.

You can also apply for an unsecured business loan from leading lenders and get high-value finance with minimal documents. Bajaj Finserv, one of the leading NBFCs offers business loans with quick approval in just 24 hours and simple eligibility criteria.

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