MSME loan is one of India's most preferred funding options for micro, small, and medium-sized organizations. However, while most entrepreneurs are quick to take out an MSME loan to keep their business up and running, some struggle to repay them.
Several factors, such as lack of financial planning, inadequate repayment strategies, and a series of losses, are among the top reasons for the delay in payment.
However, with this comprehensive MSME loan repayment guide, you can easily manage your debt and settle it on time.
Read along to gain more intel.
5 Easy Steps to Repay MSME Loans
If you have an active MSME loan and want to repay it without any hiccup, follow these steps to simplify the process:
Step 1: Chalk out a repayment plan
Prepare a well-thought repayment plan. Start by collecting your monthly bills, credit card statements, and even loan records to list your debt. Tally those expenses against your monthly income to draw a realistic budget.
For a more comprehensive insight, make sure to list down these:
● Outstanding loan amountBased on the information corroborated, plan and modify your income inflow and outflow and prepare a suitable repayment plan.
Step 2: Cut down unwarranted expenses
Once you have made a list of your expenses besides a loan, find out which of those can you reduce or cut down entirely.
Some of the costs that can be controlled include commuting in a personal vehicle, eating outside, shopping for things you do not need immediately, hosting parties, and ordering food from outside. Similarly, determine whether any growth-oriented expenses such as purchasing a new building, machinery, or expanding the scale of operation would strain available resources and slow down the repayment process.
While cutting down such costs entirely can be more complex than it seems, choose to ration them so that you do not overshoot your expenses. The goal is to ensure that your daily lifestyle expenses do not become a roadblock to paying off the MSME loan.
Step 3: Avoid credit purchases
As discussed, purchasing things that are unnecessary is an unwarranted expense, especially if you have an active MSME loan. In this regard, you should be cautious and avoid credit purchases. Unfortunately, individuals often use their credit cards to purchase consumer durables or unwanted things they could easily do without.
While it does not immediately bother them because they do not have to pay for the purchases at once, buying things on credit is more notorious. You end up buying things you do not need and overshoot your credit utilization limit, which can bring down your CIBIL score.
Additionally, you may attract a high interest rate if you fail to repay your credit card bill on time. This further adds to your credit burden and makes it challenging to juggle payments of both your loan and your credit card bills.
Step 4: Pay off debt accompanying higher interest
Having multiple active loan accounts, you need to repay the debt smartly. For instance, pay debts with the highest interest rates first, then move to the next one with relatively lower rates.
However, it is best in your interest to avoid loans that accompany higher interest rates. You can opt for an SBFC MSME loan that accompanies a competitive interest rate for all your future working capital requirements, without any hidden charges. This way, you can easily pay off your loan burden without surging your cost of borrowing.
However, in the case of existing loan accounts, it is recommended to start paying off the larger debt amount first.
Step 5: Negotiate for better terms
Last but not least, negotiate with your lender to offer you flexible repayment terms. You can request a restructuring of the existing EMI plan. You can also ask the lender to lower the interest rate to help you manage your MSME loan better.
However, before you approach your lender, improve your credit score. Having a high credit score and a spotless record of repaying previous and existing loans favour borrowers' creditworthiness. Resultantly, lenders are more likely to negotiate and adjust repayment terms.
Besides these, you can choose to pay the existing MSME loan party to save on the overall interest burden. For example, if you have an influx of income or generate revenue better than expected during your loan tenure, you can use the same to make part payments.
Then again, make sure to find out whether your lender levies any added charge on such a feature. Similarly, choose to increase your loan EMI amount frequently throughout your loan tenure.
Lastly, you may explore refinancing to repay your MSME loan at a lower interest rate and better terms. With this MSME loan repayment guide, you can easily manage your existing loan and pay off your debt on time.
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