Cost Reduction In Your Business By Refinancing Your MSME Loan

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India has approximately 42 million small businesses, both registered and unregistered. However, operating a small business comes with its own set of worries, and getting a loan for your business is one of them. Micro, small and medium-sized enterprises (MSMEs) frequently rely upon loans from banks and non-banking finance organisations to address various business-related concerns. These could range from growing their business to gathering stock, organising working capital, or even day-to-day operations. Once they receive the loan amount, the business owners’ job is to reimburse it with timely repayments.

MSME loans have very stringent repayment policies. If owners lose credibility with the banking institution, it could cost them their business. Thus, many business owners prefer refinancing their existing small business loans.

What does it mean to refinance business loans?

Refinancing your MSME term loan means replacing your existing loan with a fresh one. With a refinancing, MSMEs can get a bargain on interest rates and less stringent terms. Refinancing also impacts payment schedules, and other terms of their existing loan are revised. Refinancing an existing loan comes with many terms & conditions and charges. To start with, MSMEs may have to pay hefty processing fees for the new loan application and foreclosure charges for their existing loan, which could be troublesome since they are already arranging a credit facility.

What makes refinancing your existing MSME business loan beneficial?

Accessibility

Gathering funds for working capital, supporting a running business, or buying assets for diversification may be some of the challenges a small business has to face. An MSME loan is not difficult to get, and the entire cycle is very stress-free. Documents required for business loans are negligible, and the credit sum gets dispensed rapidly. This can prove to be helpful when small business owners need immediate funds.

Reduced Interest Rates

Money saved is money earned, and nobody wants to spend a fortune paying higher rates of interest. MSME loans accompany reduced loan interest, making them a popular funding option.

Collateral-free Loans

MSME loans are collateral-free loans, which means small businesses don’t have to guarantee anything against the credit facility. MSME loans are intended to help small companies lift their productivity, making them an optimal way of bringing in funds.

Flexibility

For the most part, MSME loans are utilised for the immediate funding needs of small businesses. A short-term responsibility implies that business owners can deal with the funds effectively and dispense accessible assets as required.

When should MSMEs refinance their existing loan?

1. When they must change the type of business loan

There are various kinds of MSME loans assisting businesses with subsidising their costs. For example, a short-term working capital loan and a long-term business development loan might have different loan fees and different tenures. MSMEs ought to refinance their loans if the first loan wasn’t the most appropriate for their needs.

2. When they need more liquidity

Whether for extension or business loan consolidation, the need for additional funds might arise anytime. On the off chance that the time is now, refinancing is a perfect choice.

3. When they want to increase their tenure

Changes in income and economic conditions sometimes stimulate small and medium business owners to readjust their loan tenure. Refinancing the loan invigorates these entrepreneurs to change the tenure of the loan. Supplanting an existing loan with another one for a longer period keeps the EMI sum within the minimal range. As against the norm, a cash surplus because of occasional demand in business can stimulate entrepreneurs to prepay the loan and clear all debts.

As stated before, refinancing can be challenging. It is because refinancing a working capital loan includes:

1. Prepayment charges

While taking care of your loan in a short period could be enticing, you should consider the consequential charges. Your bank will apply a prepayment charge if you refinance the loan. It may not benefit if you’re not cautious while assessing the expenses in question.

2. The negligible difference in some cases

Business loan refinancing is excellent when you want lower interest rates. However, at times a lower interest rate may not have a remarkable effect assuming a business owner is paying it towards a long-term loan. Furthermore, the expense of processing adds up, and a hard inquiry by the new moneylender might try and influence the FICO rating adversely.

Bagging an MSME credit is simple and easy. Experienced non-banking financial institutions offer quick disbursal — given all the business loan documents required are readily available and the small business owners have been regular with their monthly instalments. The handling time is remarkably speedy, and loan specialists have processing times of as low as 24 hours. Most moneylenders have online record access, allowing them to access the applicant’s loan repayment record without any problem.

Conclusion

MSME loans accompany competitive financing costs, guaranteeing that an exceptionally lower sum is spent on refinancing the credit. Contrasted with other loan types, this one translates into savings. Also, most MSME loans don’t need insurance. These loans are generally used for short-term purposes by small business owners. This represents a specific measure of adaptability to the borrower, as there is no long-term commitment. Small business owners should decide to refinance the loan by following these steps:

  • Check and assess the organisation’s hidden expenses.
  • Negotiate with the banks for lower EMI and lower financing costs, as less EMI implies more savings and working capital.
  • Checking the prepayment option on the MSME loan with the bank.

FlexiLoans, one of the most celebrated MSME loan providers, offers collateral-free small-business MSME loans to fund working capital needs. FlexiLoans can help borrowers access funds at interest rates as low as 1% within 48 hours of applying by simply filling in basic details.

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