MORATORIUM: ADVANTAGES, DISADVANTAGES, RELATED DETAILS FOR MSME LOAN

Moratorium session refers to the period during which you do not have to pay EMI on the loan taken. This span is also known as the EMI holiday. Habitually, such breaks are offered to help individuals facing temporary financial problems to plan their money matters better. With the country being in lockdown to contain the spread of COVID-19, the Reserve Bank of India had declared a slew of measures, to tide over economic outgrowth. Similarly, some lenders offer a moratorium on home loans as well. For instance, SBI Flexi home loan allows customers to pay only interest in the initial 3-5 years, after which flexible EMI payments begin. But in the current situation, banks are supposedly allowed to offer a moratorium on all kinds of loans for 3 months. Read the full article to understand more about moratorium and MSME Loan.

While such repayments holidays offer relief to the borrower, they come with a downside as well. Let consider the case of the current moratorium. While borrowers are not required to pay EMI or interest until the end of the moratorium period, the interest will continue to accrue on their loan amount. 

MSME Loan under Aatmanirbhar Bharat Abhiyan has a moratorium period of 12 months.

DISADVANTAGES OF MORATORIUM

• As the interest continues to accumulate during the moratorium period your EMI could increase after June 2020.
• In the case of big-ticket loans for example home loans, overall tenure could increase.
• During the moratorium period, you will not be able to use your credit card.

ADVANTAGES OF MORATORIUM

• The moratorium offers some respite in case of a financial emergency. You can stop your loan repayment during this period while you divert your funds for your necessary needs.
• The banks will not charge any punishment even though you are not repaying the loan during this period.
• Since it is a relief measure, the banks will no report you as a non-payer to the credit desk during the moratorium period. Even if you do not repay your loan, your credit score and credit history will not see an unfavorable impact. This will help in the future when you need to take another loan and need good credit.

MSME LOANS

MSME stands for Micro, Small, and Enterprise. MSME these loans are mostly offered to start-ups and business owners. This loan is offered for the advancement of business and other activities like the purchase of machinery and raw material, to meet the working capital requirement, and to invest in fixed assets. Bank and financing institutions like NBFCs offer MSME business loans. However, the interest rate and loan amount vary across the bank and NBFCs. These loans are mainly offered to startups, small business owners, women entrepreneurs, etc. The eligible entrepreneurs for this scheme are sole proprietorships, partnership firms, manufacturing or service-based micro and small enterprises excluding retail trade educational institutions, training institutions, agriculture, and self-help groups.

Apply for MSME Certificate: Click here.

Classification of MSME loans

MSME classified into two categories one is manufacturing, enterprises, engaged in manufacturing or production of goods, and second is service, engaged in providing services. These categories were earlier defined in terms of investment in plant and machinery or equipment. As per the Atmanibhar COVID-19 relief package announcement, the classification of MSMEs has been changed from investment to investment and annual turn over.

MSME HAS ANNOUNCED ON 13TH MAY 2020

• MSME classification criteria had been changed from investment to investment and annual turn over.
• The investment limit for classification for MSMEs had been increased which means more enterprises and are now eligible for MSME loans.

Features of MSME loans

MSME wants to aim to facilitate credit flow in the MSME SECTOR.

• These loans aim to bring in the upgrade of technology to the small business sector.
• MSME loans provide overall development to small scale industry through skill development and training programs.
• MSME loans are offered to all borrowers who are related to small scale industries, a sole proprietorship firm, partnership firm, private limited companies, public limited companies. 
• MSME loans are offered for a maximum period of 15 years.
• The MSME can be both secured and unsecured, depending on the borrower payment capacity and on the bank’s terms and conditions.
• The interest rate on MSME loans varies across lenders that begin from 13.50%.
• Similar to the interest rate the loan amount varies across the lender and the borrower. However, it cannot increase from Rs 500 cores.

Eligibility criteria for MSME loans

It does not require too many documents or unnecessary paperwork that can hold-up the loan approval process.

1. An established business that has been in operations for more than six months.
2. The business should not be under the blacklisted or the excluded list for SBA finance.
3. The physical location of the enterprise should not be in the list of negative locations.
4. Trust, NGO, and charitable institutions are not eligible for small business loans.

DOCUMENTS REQUIRED FOR LOANS

• Bank statement
• Business registration proof
• Proprietor(s) pan card copy
• Proprietor(s) Aadhar card copy
• Partnership deed copy
• Company pan card copy

SIMPLE STEPS TO YOUR MSME LOAN

(1) SUBMIT APPLICATION        

Simply enter your personal, business, and financial info to receive an MSME loan offer.

(2) UPLOAD DOCUMENTS

Upload a digital copy of your documents in a single step process for verification.

(3) GET SANCTIONED

Receive your MSME approval and disbursal within 3 working days.                                                                                                                              

Are you a small business owner? Apply for MSME Loan here