An MSME loan for traders, also known as Trade finance, is availed for conducting domestic trade and international trade. There are a number of banks, MSMEs, online lenders, and other financial institutions that offer MSME loan for trades. And thus, facilitating traders in the country. In this article, we shall discuss MSME loan for traders in detail and how to effectively use it.
What is MSME Loan for Traders?
An MSME loan availed for traders is called an MSME loan for traders. Also called trade finance loans, the money availed can be used for a business purpose only – trading. The trade finance helps to ease the cash cycle and pay the suppliers on time. With the help of a trade loan, the inventory of goods can also be increased and business can be expanded.
The MSME loan for traders can be availed with or without collateral. There are a number of small business loan providers in India who offer MSME loans for traders at affordable interest rates and basic eligibility criteria.
Documents Required for MSME Loan for Traders
The document requirement for MSME loans depends on the lender. Every lender requires a different set of business loan documents according to their set eligibility criteria. However, a generic list of MSME loan documents is as follows:
- PAN Card to support information related to income tax returns
- Last 12-months bank statement (at least) to check the financial behavior and creditworthiness of the businessman
- Last 2-3 year ITR (at least) for income-related information of the businessman
- Business place and residence address proof, such as utility bills, lease deed, etc.
If a collateral MSME loan for traders is availed, the documents of the asset hypothecated are also required. In addition, the loan amount sanctioned will be parallel the monetary value of the asset hypothecated. It is worth mentioning that the processing and approval time increases significantly as it would take time for the lender to calculate the value of the asset.
Eligibility Criteria for MSME Loan for Traders
As with the required documents, the eligibility also varies from one lender to another. A generic list of the same is as follows:
- The interested candidate must be between 25 and 60 years of age.
- The business must be in operations for at least 2 years (3 years for some lenders).
- The filed ITR in the last 12 months by the business owner must be at least 2.5 years.
- The business premise or the house must be owned by the borrower in case of collateral-free loans.
- The turnover of the business in the previous year should be at least 10 lakhs.
How to Get MSME loan for Traders?
To avail an MSME loan for traders, the borrower must meet the eligibility criteria laid by the lender. In addition, he must have all the required documents. However, one important requirement is the CIBIL score – the borrower’s CIBIL score must be more than the required threshold.
If the borrower meets all the requirement, he can simply avail the MSME loan by applying for it online on the lender’s website and uploading the PDFs of the required documents. The lender’s representative will then process the business loan application and approve it if all the requirements are met.
5 Ways to Use MSME Loan for Traders
The following are the uses of the MSME loan for traders:
- The businessman can pay the suppliers on time in case of shortage of liquid cash or inflow of cash. Paying suppliers on time enhances reputation and builds goodwill of the company in the market allowing the business owner to take credit from the market for extended durations.
- The loan for traders can be used to meet the working capital requirements. There are times when the dealers delay the payment which affects the inflow of cash. In such a case, many times the business suffers from a lack of working capital. So, an MSME loan can be used to pay utility bills, salaries and wages to employees, etc.
- A business loan can be used to increase cash flow in the business. In case a business is facing a break down in cash liquidity, the loan amount can be used to ease down cash flow and operate efficiently and effectively.
- Inventory is the most important aspect for any trader! The money availed under the loan can be used to increase inventory. More inventory can be helpful in terms of the timely availability of the products and services when in demand. Thus, increased sales and profits.
- An MSME loan for traders can also be used to business expansion. There are many instances when a trading business witnesses a growth expansion but could not take the benefits due to lack of money. The business may be generating good profits but it is not always possible for a business to take out a huge chunk of money out from the cash cycles. So, a loan for business can be used for the same.
Trade finance is usually a short-term loan which is availed for the business expansion. It can be secured or unsecured. With the advent of technology, it can be availed online at minimal documentation and basic eligibility criteria.
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