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Guide Your MSME Client Properly

25 Dec, 2019 Divesh Mishra

We all know that not only in India but worldwide, the Micro, Small and Medium Enterprises (MSME) sector plays a crucial role in spread of wealth, employment generation, creativity, nimble footed management, GDP growth, and exports. An MSME unit could employ anywhere from 1 to 100 persons.

All MSMEs belong to the private sector or cooperative sector. Almost the entire sector comes under entrepreneurial sector. There is no Public Sector or MNC involvement here.

In our country, as per collated data, this sector comprises of 6.3 crore units (some may be defunct, of course), employing over 11 crore people. The MSMEs also contribute significantly to the economy of the country with 30% share of GDP.

This is one sector which has one and only one way of financing, I.e., Banking & Financial Services Sector. Proper banking finance for these units could fuel India’s growth further. Yet, MSMEs do not have proper access to a timely and quality credit line for investing in business and expansion plans, often, derailing the entire venture.

There is also a lack of experts who could guide these ventures towards a proper credit line, understanding and compliance of terms, nuances of market economy and keeping up the innovation curve.

Let’s see what are the key attributors which an advisor, MSME guide should keep in view:



GST and other statutory registrations for the business provide a compliance check to MSME business. Lenders derive comfort when sanctioning a business loan to an entity registered within the statutory framework as required is complied with. Hence, GST registration and compliance of the GST return mechanism is a big plus.


Credit Score
MSME credit score is a reflection of the unit’s repayment pattern and credibility. It makes sense to maintain a healthy credit score while availing short-term loans or credit card facilities. In fact,  lenders tend to 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 a loan if your business has been profitable and generating operational cash flows on a consistent basis.

As a guide, you should be aware of the audit qualifications in their financial statements and guide them towards taking necessary corrective actions to avoid repeat qualifications.


Profitability and Taxes paid
If the MSME business is profitable, it should reflect in the cash flow of the unit (liquidity) to repay the loan. Hence, the profitability of operations and regularity of taxes paid can positively impact eligibility and quantum of loan that can be sanctioned for the MSME business.


Statements of Bank Account (of the business as well as of the promoters)
It is a true mirror of all the organised financial activity of the unit. A prudent lender can identify suspicious transactions easily. The lenders tend to assign weightage to the assessment of the bank account, as it reflects the actual cash flows into the business from sales.


The Existing Banker Is The First Choice 
It is advisable to first reach out to the existing banker where one is holding a savings (as a promoter) or current (for the business) account. The existing banker already has first-hand information of the conduct of your bank account and cash flows and thereby would be able to offer better terms as well as options in terms of availing a business loan from them.


Longevity of Business 
The sustainability of the business is a result of fulfilled promises made to the business. Longevity matters.


Realistic Projections 
The future projections and expansion plans submitted to avail a business loan should be realistic, supported by fair assumptions.


Loan Tenure
It is not necessary that the unit must avail the highest permissible loan. Instead, apply only for the amount and tenure as genuinely required, such that the unit could repay the loan through business cash flows.


End use of Funds
Any funds disbursed for the business must be utilized for the business only. Lenders highly insist on documenting the proposed end use.