Business Loans – Expectations vs. Reality: What Every MSME Owner Should Know

The truth is that you will always need money for both sustaining and growing your business. Business financing is the most accessible way to get the funds necessary for business operations. However, the business loan reality is that there are myths surrounding it that can affect your decision.

There are misconceptions around MSMEs funding options that result in the lack of access to business loans. Over 87% of MSMEs face credit issues due to limited financial literacy. While business loans can accelerate growth and innovation, the business loans reality is often misunderstood.

Small business owners expect that they will obtain instant approvals or fixed interest rates, creating a false sense of ease. These business loan myths often result in confusion, delays, or missed funding opportunities. This blog debunks business loan myths by highlighting the MSME loan truth. It also offers you the expectations vs reality business loans awareness to navigate the system successfully.

Expectation vs Reality #1 – Getting a Business Loan is Instant

• Expectations: Expectation is that you click a button and get money in your account the next day.
• Reality: Business loans follow a set and established procedure that depends on documents, credit profile, and lender policies. It takes time for both application, approval, and disbursement.

Banks and NBFCs are governed by the Reserve Bank of India (RBI) and are subject to regulations on the business loan application procedure in India. It guarantees financial stability, equity, transparency, and borrower safety. This is why getting a business loan isn’t instant.

You might expect that getting a business loan is super quick and easy. However, in real life, it depends on your documents, credit score, and the lender’s rules. Traditional banks take 7 days to a few weeks to approve and disburse the loan.

Taking a business from Fintech companies like FlexiLoans, on the other hand, is faster as the business loan application process is completely online. They use online systems and smart tools to check and verify your details.

This helps small business owners like you get fast MSME loan disbursal, sometimes within a day or two. However, these lenders also need proper documentation. So, no loan is truly instant. To get it fast, you need to be ready with the right papers and a good credit profile.

Expectation vs Reality #2 – You Need Collateral to Get a Loan

• Expectation: Only big companies with collateral security or assets can qualify for a business loan.
• Reality: Even small businesses can get a business loan without collateral.

Many MSME owners worry that they need to pledge their personal or business assets, like property or machinery, to get business loans. This is not always true. Today, many banks, NBFCs, and lenders offer unsecured MSME loans that do not require any collateral.

These loans are given based on your business turnover, bank statements, and GST filings. For example, FlexiLoans offers an SME working capital loan that allows businesses to borrow up to ₹1 Crore without any security, repayable over a substantial period. So, even if you’re a small business without assets or collateral, there are financing options available that are safe, accessible, and tailored to your needs.

Government schemes like Mudra and CGTMSE also support small businesses with collateral-free funding. So, even without big assets, your business can still qualify for the funds it needs to grow.

Expectation vs. Reality #3 – Only Big Businesses Get Loans

• Expectation: Only large businesses can apply for big loans.
• Reality: Large loans for small businesses are also possible if small businesses meet the basic eligibility criteria for business loans.

Many small business owners believe that only big companies can apply for big loans. Also, small business owners can only apply for a small amount. Today, there are many lenders like NBFCs and Microloan providers who focus on giving big loans to small businesses. Unlike traditional banks, which prefer high-value loans. These lenders support small businesses with flexible options.

FlexiLoans, for instance, offers an MSME loan of up to ₹1 crore. The important thing is not the size of your business, but your reliability and finances. Lenders check your cash flow, credit history, and business performance to decide your MSME loan eligibility.

In fact, more small businesses are now accessing bigger loans. So, even if you run a small business, you can apply for a bigger business loan as long as you can show that you can repay it.

Expectation vs. Reality #4 – Interest Rates are Too High

• Expectation: MSME loans always have high interest rates.
• Reality: Business loan facts regarding interest rates revolve around your credit profile and the type of loan.

Many small business owners believe that taking an MSME loan will cost them a lot due to high interest rates. The MSME loan interest rate can vary based on who you borrow from, your credit score, and whether the loan is secured or unsecured.

For example, working capital loans usually have slightly higher rates due to short-term risk, while term loans or secured loans often come with lower interest. In India, MSME loan interest rates typically range from 12% to 24% per year, depending on your business profile and repayment history.

FlexiLoans offers low interest business loans starting from 12% per annum. To get a better rate, maintain a strong credit score or opt for a secured loan where you provide a business asset as security. This reduces the risk for the lender and lowers your interest.

Expectation vs. Reality #5 – A Good Business Idea is Enough

• Expectation: If my startup idea is good, I’ll easily get a loan.
• Reality: Lenders look at your business’s financial records, not just the idea.

Many new business owners believe that having a good or smart business idea means they can get a loan. For the lender to approve a loan, banks and NBFCs check your business’s financial records and statements to ensure you can pay the loan back on time.

Lenders also ask for financial records from startups to know their repayment capacity. Lenders look for customer sales, inventory, or cash flow. If you don’t have this, the chances of your MSME loan approval are low.

If you’re wondering how to get a business loan, start by keeping records, showing your income, and understanding the MSME loan requirements. A strong financial base is more important than just a great idea.

Expectation vs. Reality #6 – CIBIL Score Doesn’t Matter for Business Loans

• Expectations: Only a good CIBIL score for MSME loan leads to approval 
• Reality: A good score helps, but other things matter, too.

Having a high CIBIL score means you have a good record of paying loans on time. This significantly improves your chances of business loan approval. However, lenders also check your business’s turnover, tax returns, and whether your documents are complete and correct.

For example, many banks have an eligibility criterion that necessitates your business to make at least ₹20-30 lakh a year. This shows you can repay the loan. Even if your credit score for a business loan is great, missing or wrong documents can get your loan application rejected. So, to get a loan, make sure you have:

• Good CIBIL score
• Clean and complete documents
• Proper records of your business income and taxes

Tips to Align Expectations Before Applying

Getting a business loan is simple if you have a robust plan, knowledge of eligibility criteria, and necessary documents ready. You can face delays and rejections if you fall prey to the myths and misconceptions. So, if you want to avoid rejection and improve the chances of loan approval, look through this easy business loan checklist:

• Check Your Loan Eligibility Online: Visit the lender’s websites or apps to see if you qualify before applying.
• Choose the Right Loan Type: Choose between working capital, term loan, or invoice financing, depending on your need.
• Keep All Documents Ready: Keep ready bank statements, GST returns, KYC documents, and business financials in advance.
• Compare Lenders: Check offers from NBFCs and banks. NBFCs often provide faster approvals, while banks may offer lower interest rates.
• Improve Your Credit Profile: A good CIBIL score and clear financial records help get better loan terms.

These MSME loan tips can make your loan process smoother and more successful.

Conclusion

Business loans are a reliable way to fuel business growth, manage operations, or expand into new locations. Whether it’s to meet short-term working capital needs or long-term investment goals, choosing the right loan can be beneficial for your business. By avoiding common misconceptions regarding business loans, you can successfully apply for a business loan.

In this journey of growth and expansion, FlexiLoans is your most reliable financing partner. We offer MSME loans of up to ₹50 lakh with interest rates starting from just 12%. We also make the loan journey easier for small businesses with flexible tenures, quick disbursements, and collateral-free offerings.

FAQs about Business Loans – Expectations vs Reality

Q. 1 Is it difficult to get a business loan in India?

Ans: Obtaining a business loan in India is not difficult if you meet the eligibility criteria. If you have the right documents, a good credit score, and clear business records, you can improve your chances of loan approval.

Q.2 Do I need collateral for an MSME loan?

Ans: Many lenders offer unsecured MSME loans without collateral. However, secured loans (where you offer an asset like property or machinery) can come with lower interest rates.

Q.3 Can a small business with low turnover get a loan?

Ans: Yes, some lenders and NBFCs offer loans for small businesses even with low turnover, especially if you have a stable income flow and a good credit score. Government-backed schemes and microfinance options are also available for such businesses.

Q.4 How long does it take to get a business loan approved?

Ans: Approval time depends on the lender. With NBFCs and digital lenders like FlexiLoans, the process can be as quick as 48–72 hours, provided all documents are in place. On the other hand, traditional banks may take longer, around 7 to 10 working days.

Q.5 Are only large companies eligible for business loans?

Ans: No, these are business loan myths. If small businesses satisfy the eligibility requirements, they can apply for business loans from a variety of financial institutions.