How To Get Finance From Micro Finance Companies In India?

Every business requires funds for their working capital and to invest in assets. Huge businesses tend to get more exposure to the sources of finance. On the other hand, small businesses can hardly find any source to get financial help. Though the government of India is yet to undertake any official study to estimate the number of credit gaps its MSME sector faces, unofficial studies point to a potential Rs. 20–25 trillion credit gap.

Legacy enterprises with deep pockets get the lion’s share of India’s largely restricted credit vehicle, driven mainly by legacy lenders like banks. Banks and legacy lenders blame credibility as a show-cause for not providing loans to small businesses. Enter: microfinance companies and fintech. Hailed as heroes in India’s credit-starved market, fintech and microfinance companies are overturning the lending game in India’s micro, small, and medium enterprise (MSME) scene. Keep reading to learn more about how you can finance your business by leveraging a microfinance company in India.

What is Microfinance?

It is challenging for a small business person to get a traditional bank loan. Microfinancing can be a perfect solution for small businesses and entrepreneurs. Microfinance is often explained as providing essential financial services, such as granting working capital loans, insurance claims, and so on, to small entrepreneurs or low-income business owners when they don’t have the opportunity to get traditional business loans. The objective of providing microfinance is to help small businesses expand and make them capable of applying for a traditional loan.

The microfinance companies in India lend money to the applicants based on mutual trust and confidence, thereby creating a solidarity economy. A committee is usually formed by the microfinance company that examines the business loan eligibility criteria of the applicant, their repayment capacity, and so on.

Which Are the Microfinance Companies in India?

Several financial lending institutions in India provide microfinance facilities. As per reports, India has 113.1 million microfinance business loan accounts as of March 2022. 

The top microfinance companies in India are as follows:

1. Equitas Small Finance

2. Fusion Microfinance Pvt. Ltd.

3. Annapurna Microfinance Pvt. Ltd.

4. BSS Microfinance Ltd.

5. Cashpor Micro Credit

How to Get Loans from Microfinance Companies?

The process of getting microfinance varies between the different microfinance companies operating in India. The following is the list of some documents which are usually required to submit along with an application to a microfinance company:

• Application form

• Proof of the location of your business

• PAN card of the owner/business

• 2 passport-size photos of the owner

• ITR of the 2 preceding financial years

• Audited books of the 2 preceding financial years

• Bank account statement for last 6 months

• Invoice of the asset to be financed

• Professional certificate, if applicable

The examination of loan eligibility criteria by microfinance companies is not as tight as other traditional banks. Microfinance companies believe more in analysing human criteria instead of financial criteria. The repayment periods in microfinance are much more flexible than in banks because they also offer weekly repayment periods.

How to Get the Microfinance Application Approved?

It is observed that the applications of business owners get rejected for several reasons. These are the steps that you can keep in your mind to ensure that your microfinance loan application gets approved by the microfinance companies:

• Ensure basic eligibility criteria – Many people apply for microfinance loans without ensuring that they meet the basic eligibility criteria, which leads to the rejection of the application. The applicant for microfinance must qualify for the age criteria of 24-72 years.

• Avoid applying at multiple microfinance companies – People apply at multiple microfinance companies to increase their chances of getting a loan online. But this proves to be a failure because the companies come to know the number of places where you have applied for microfinance, which is a hindrance in the entire process.

• Define your vision and mission – The microfinance companies are keen to know how much interest a person is taking in expanding the business. You must write about your vision and mission in the business plans in clear and exciting terms that interest the microfinance companies. These companies want to work with people who are interested in the success of their business.

Conclusion

If you are a small entrepreneur who doesn’t have a solid financial background or assistance, then microfinancing can be an excellent option for you. If you follow the steps mentioned above and apply for the microfinance loan with the correct application information, there is a high chance that you will get the loan from the microfinance company. Several microfinance companies in India can help you expand your business with microfinancing. You can also go through the ways of repayment of loans to ensure a smooth process. This article explained the entire process of financing from microfinance providers.

You can also visit Flexiloans to learn more about such loan facilities. We offer you business loans and MSME loans to expand your business. We provide hassle-free services with minimal documentation. Focus on scaling your business with our assistance.

Frequently Asked Questions:

1. What is microfinance?

Microfinance provides loans and other financial services to small businesses, otherwise credit-starved, to let them expand on a large scale.

2. What are some microfinance providers in India?

• Equitas Small Finance

• Fusion Microfinance Pvt. Ltd.

• BSS Microfinance Ltd.

3. Do I need to provide a guarantee to get microfinance?

Yes, it is advised to give collateral security or guarantee to build trust in the eyes of the lender.