Proven Ways to Reduce EMI Burden on the MSME LOAN

by Abdul Samar Business Finance Provider

As a small and medium-sized business, seeking a loan from any financial institution is seamless today because of the financial agencies. However, the EMI burden on that sanctioned loan is unavoidable. Immediate availability of funds allows smooth operations in MSME business, but there can be market trends that lead to a cash crunch at the time of EMI payment. 

 

In this write-up, we will close your issue on the Loan EMI burden. We will put on some output-driven points for the MSME business. With the help of those points, the business can lower its EMI loan burden. 

 

Before discussing EMI Loan burden for MSME, let's grab a crisp idea of how EMI is both a blessing and a bane. 

 

EMI- A bane!

EMI payment on the loans knocks on the door without a blink. With EMI comes the interest cost. There can be a situation where your business can't churn modest profits. In such a scenario, a business may fail to repay the EMI and interest on the loan. Non-payment of EMI along with interest will lead to a bad credit score and harm the business's goodwill. Another issue with the non-payment of EMI will lead to a late fee penalty. 

 

EMI- A Blessing!

A loan allows businesses to expand. Through EMI, the business gets time to repay the loan. Small businesses can grow and pay back their loans together. After a successful EMI payment, the business's credit score is improved. A business can get better loans without any hindrance with a good credit score. 

 

EMI Burden Management on MSME Loans

 

MSME Loans are short-term cash inflows that allow a business to overcome financial problems. MSME loan fuels the growth of the new business venture. These loans can be repaid in the form of EMI. EMI can go up to INR 50000 to INR 100000. Some of the ways through which a business can lower the burden of EMI loans are: 

 

Consider the Loan Amount: Before applying for the MSME business loan, it is advisable to check for the deduction. To reduce the EMI burden, it is primary to reduce the loan amount. A business reduces the EMI and interest issues if they apply and sanction the minimum loan amount. To reduce the interest charges, a business can opt for a small loan with a shorter repayment period. 

 

Interest Rate Analysis: It would be preferable if you plan for a loan prior. Applying for business without any lag period will lead to higher interest rates. You should compare the interest rates of different financial institutions before taking a loan. This will allow you multiple opportunities and low-interest-bearing loans. With some time, a business can also evaluate the best financial institutions for their business loan. A good financial institution will guide the business on saving interest and reducing the EMI loan burden. A business can negotiate with the financial intuitions stating their business plans and budget. 

 

One-Time Deposit Scheme: Some banks like HDFC and ICICI offer a one-time deposit scheme. The scheme is applicable for business. In this scheme, the business has to deposit a fixed amount monthly. In the amount invested, they can earn interest. The interest earned will help the business meet the EMI payment or other operational expenses. Businesses are free to use the amount from this scheme. Through this scheme, MSME can earn an extra amount and keep some chunks aside for future risks. 

 

Loan Divisions: Small businesses are advised to consider the bigger divisions to pay a loan after taking the loan. With the bigger repayments, a business can repay the loan faster and with less EMI. If businesses choose to pay the loan amount in small chunks, they are increasing the number of EMIs, thereby paying the EMI interest charges. 

 

Consider Refinancing: Refinancing allows a business to change the old agreement. A business can transfer the existing loan to a new lender with less interest rate and less EMI pressure. Through refinancing, a business can shift from longer to shorter EMI tenure or vice-versa. Refinancing also boosts the business's credit score and enhances the working capital. 

 

Negotiations: You can always negotiate with your lender to reduce the interest rates on your MSME business Loan. A conversation will not work. You will need a sound business plan. A good business plan will help a business in negotiations. The business idea will be more convincing if it has graphs and past revenue. 

 

Extras: To reduce the further EMI burden, a business can choose to pay the extra EMI. This business will reduce the interest charges for future payments. Paying extra can be done when a business has a good profit scenario. Repaying the EMI and not further investing the amount is a good alternative to choose. By repaying the EMI today, you will save the fixed cost in the future. 

 

Fees: Before accepting the MSME business loan, check if there are any prepayment or part-payment charges. The bank charges 1% for processing the entire loan payment. Few banks charge zero processing fees. For the prepayment or part payment charges, the bank charges certain fees over the outstanding loan amount. However, the charges are lower compared to the business loan interest rates. 

 

Wrapping up!

Loans are needed for businesses to move forward. If they have sufficient money, businesses are expected to invest in other sources. If businesses think of taking a business loan, it will help them increase their credit ratings and allow them to grow without thinking twice.

 

The loan helps businesses to meet their working capital requirements. The business can pay daily wages without any delay. They can upgrade the infrastructure of the business and can invest smartly in marketing.

 

The loan has multiple benefits and is the universal mode of growing any size of business. The only burden here is EMI. With the points mentioned below, any MSME can chalk out a plan to lower their Loan EMI burden. Businesses can discuss with the financial consultants of the finance agency for better decisions.  

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Created on Dec 19th 2022 04:40. Viewed 157 times.

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