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A primer for availing MSME business loans: Here's everything you need to know

Globally, the Micro, Small and Medium Enterprises (MSMEs) segment plays a crucial role in employment generation, driving innovation, GDP growth, and augmenting overall economic activity. In India, this segment constitutes a vast network of over 63 million units, employing around 111 million people. The MSMEs also contribute significantly to the country's GDP, as the share in pie stands at about 30 percent. (Source - Mint Street Memos by RBI, August 17, 2018) 

In short, the MSME segment is one of the most potent engines of the economy and it would not be wrong to state that funding them could fuel India's growth. Yet, MSMEs are deterred by lack of access to a quality credit line for investing in business and expansion plans, often, derailing the entrepreneurs from their vision. 

Sluggish credit growth also attributes to lack of awareness among business owners regarding the requisites to avail a business loan. As a result, the acceptance rate for loan applications and ultimately credit growth tends to slow down. 
If you are a business owner, here are the key aspects to consider when applying for a business loan ranging from Rs. 2 lakh to Rs. 50 lakh. 

Healthy Credit Score 
Your credit score is a reflection of your repayment pattern and credibility. As such, the lenders can have a fair idea of the credit risk involved in sanctioning a loan to you and your business through the credit score. It makes sense to maintain a healthy credit score while availing short-term loans or credit card facilities. In fact, some lenders also provide better interest rates and services for customers with a good credit score. 

Audited Financial Statements 
The audited financial statements help the lender to assess how well the business has been managed financially. Lenders are more inclined to sanction you a loan if your business has been profitable and generating operational cash flows on a consistent basis. Also, one should be cognizant of the audit qualifications in their financial statements and taking necessary corrective actions to avoid repeat qualifications. 

Profitability and Taxes paid 
If your business is profitable, it reflects that company has enough liquid capital to pay back a loan. Hence, the profitability of operations and regularity of taxes paid can impact your eligibility and quantum of loan that can be sanctioned for your business.