Home > Resources > Blog > How to Reduce the EMI Burden on the MSME Loan?

How to Reduce the EMI Burden on the MSME Loan?

by
admin

Posted on
Jul 18, 2022

Contents Hide

1 Introduction

2 What are MSME Loans?

3 What are the Ways to Reduce EMI Burden on the MSME Loan?

4 Wrapping Up

5 How to Apply for a Collateral Free Business Loan?

Introduction

In the Indian Micro, Small, and Medium Enterprises sector, loans taken by MSMEs entail monthly EMIs. However, in many cases, the EMI amount is incurred on a small amount of working capital required to run a business.

Once that is considered, it is time to realise that the amount paid on EMIs could be far higher than what the MSME needs to survive. Hence, learning the tricks to reduce the EMI burden to save hassles is essential. Here are some tips to reduce the business loan interest rate:

What are MSME Loans?

The most common type of business loan for small and medium-sized enterprises is the MSME loan. It is a short-term credit facility allowing businesses to overcome immediate cash flow problems. The MSME loan has the backing of commercial banks and microfinance institutions, which lend money to small and medium-sized companies at lower interest rates.

The MSME Loan Scheme is a crucial reform measure aimed at promoting small-scale industries among businesses with less than Rs 1 crore turnover annually.

These loans help fuel the growth of new business ventures and building entrepreneurs; in addition, they aid in creating wealth through business expansion. Further, MSME loans support the economy by creating employment opportunities for people who were otherwise unemployed.

What are the Ways to Reduce EMI Burden on the MSME Loan?

The small business loan interest rates are usually around 8% to 10%. The EMI payment, however, is generally between Rs 50,000 and Rs 1 lakh. If one is able to reduce this EMI by even 20% without compromising the business’s growth or profitability, he/she can save a lot of money.

Here are some ways to reduce the EMI burden:

Reduction in the Loan Amount

The first thing one must do is try to reduce the loan amount as much as possible. If feasible, entrepreneurs can go for a smaller loan with a shorter repayment period; this step will ensure that they don’t end up paying higher interest rates in the long run.

Comparing Interest Rates

It would help to get mortgagors to compare the interest rates of different financial institutions before taking a msme business loan. The institution that provides business loans at the lowest interest rate is the one that companies must consider.

Calculating Required Funds

A small business loan is issued for a tiny period and thus is easier to pay. The loan amount increases in tandem with the EMI burden. So, a business must calculate the required funds before making the final decision.

Paying Extra EMIs

When a company earns smoothly and can afford to pay extra EMIs, it should pay it. The timely payment of EMIs helps reduce the financial burden in the future.

Investing in One-Time Deposit Schemes to Earn Extra Interest

Signing up for the one-time deposit scheme offered by banks like ICICI Bank, HDFC Bank, etc., is another way of reducing the EMI burden on MSME loans. Under such a scheme, a business can deposit a fixed amount monthly and earn interest on it. This interest, in turn, gets used for meeting EMIs payments or other expenses which may arise during the year!

Increasing Payment Tenure

As the tenure of the loan increases, there will be a decrease in the monthly EMI liability. The amount of repayment gets distributed over more years. It will inversely result in the EMI burden decreasing.

Refinancing New Business Loan

Refinance of new business loans can sometimes result in a decrease in the EMI burden. Refinancing means making changes to the MSME loan interest rate and the old agreement.

Negotiating with Lenders

MSMEs should negotiate with the lenders for the EMI amount. Sometimes negotiation will result in lower interest rates and decrease the burden of monthly EMI.

Considering Hidden Business Costs

Before taking loans for MSMEs from financial institutions, businesses must consider all the hidden costs that can impact the loan amount.

Wrapping Up

EMI burden is one of the biggest challenges for MSMEs. It is even more challenging for small businesses, unable to find the right resources to manage their finances.

To reduce the EMI burden on the small business loan, one must ensure that the monthly installment amount is affordable. In essence, entrepreneurs need to keep track of all their expenses and calculate the total cost of repayment to arrive at an acceptable figure.

Without this calculation, companies end up paying more than they owe. This lapse of judgment can lead to a massive financial burden on the company and their families.

Therefore, one must take some time and do calculations before signing a loan agreement. Additionally, businesses must ensure that the loan is suitable for them and does not cause trouble later.

How to Apply for a Collateral Free Business Loan?

FlexiLoans is a leading lending platform for collateral-free business loans for MSMEs. It aims to help businesses grow and succeed. With this in mind, Flexioans is offering support to small and medium businesses, making them achieve growth through financial freedom.
Any company, regardless of size, can apply for a loan at Flexiloans with minimum documentation. The money gets credited to the borrower’s bank account within 48 hours. Further, they can check the MSME loan eligibility and calculate the approximate monthly EMI using the EMI calculator for a business loan.