Running an MSME involves a lot of responsibilities and challenges, one of which is financial management, which is one of the main aspects any business owner should focus on. Most of the time, MSMEs start, operate, and expand their businesses by taking a business loan. If availing of a business loan can help a small business owner expand their business then timely repayment can help it to grow more. This article is a simple guide for you to master MSME loan repayment and keep your business financially strong.
Importance of Repayment on MSME Loans
1. Credit Score Maintenance: A good credit score contains a good credit history. A regular repayment assures that you are paying timely loan installments which results in a strong element of trust built between you and the loan provider. Maintaining a good credit score will ensure you get better loans with good tenure and increase the chances of obtaining loans at lower interest rates.
2. Avoiding Penalties and Additional Interest: Late payments lead to penalties like cheque bounce charges, late payment charges, and other additional interest that increase the total cost of taking the loan. By making repayments regularly, you will be able to avoid these extra costs which can avoid that burden.
3. Building Trust between You and Lender: Through regular loan repayments, trust is built between the loan provider and the business owner. This makes them more likely to support your business in the future, with any financial requirements.
4. Business Stability: Proper management of funds and greater use of the loan amount will lead to the stability of a business in terms of funds and maintain the flow of money during the loan period or the repayment period, avoiding a fund crisis that may affect the overall business.
How to Master Effective MSME Loan Repayments
1. Planning on How to Repay the Loan: Plan your finances before you secure any loan, study and understand your finances, to be sure that you will be in a position to make good use of the loan with a good outcome of the fund flow, which also helps you in not missing any scheduled repayment date. Also, Include the loan repayments in your monthly budget as the highest priority as the way you give importance to your other essential expenses.
2. Automate Payment: Most banks and NBFCs offer an automated system that deducts the EMI amount or the installment amount directly from your bank account on the given repayment date, which avoids paying manually, and avoids missing any repayment deadlines by mistake.
3. Manage Fund Inflows: Make sure that you have enough funds readily available with you when it’s time period for msme loan repayment. If the inflow of the fund is low, manage the cash flow by increasing the inflow of funds from different sources by avoiding unwanted expenses, paying the payments that can wait, etc. Make sure to have an emergency fund to meet any financial crisis to avoid the situation of missing your loan repayment.
4. Communicate with Your Lender: Have a good relationship with your lender, If you feel that repayments are difficult for you, you can discuss the same with the lender at the earliest. He/They might help to solve your problem with measures like increasing the repayment tenure, reshaping the loan plan, etc.
5. Increase Revenue: You must find ways to boost your sales as much as you can with the business loan amount that you have taken from the lender. This will help you to gain the fund’s inflow and generate revenue. Also, look for other sources of income that will help you make your business maintain stability and be able to repay the different loans.
6. Reduce Expenses: Avoid unnecessary expenses and make good use of that saved money to fulfill the loan amount taken. Negotiate with your suppliers for better payment options, so that you will have good cash flow in your business to pay the priority expenses.
Conclusion
Effective financial planning for MSME loan repayment is essential for small business owners to become efficient with the loans, with good management of fund inflows. Good relationships with a lender can be nicely utilized in a fund crisis situation, but increasing revenues and avoiding unnecessary expenses strengthen the financial base.
NBFCs can be a good fit for your business loans as they provide a complete range of services to the different types of MSMEs sector. With the nature of their customized products, easy loan application processes, competitive interest rates, and flexibility in case of reconsideration of loan repayment terms, NBFCs are very well equipped to help MSMEs effectively service their loans. The support and resources that MSMEs receive through NBFCs go toward maintaining a strong profitable balance sheet, driving their business toward sustainable development.