Micro credit for small businesses is a financial tool that enables small-scale enterprises to meet a financial crisis. An entrepreneur can grow the production, business, and assets by obtaining this loan. Microloans are a small amount of credit with a high-interest rate and shorter tenor compared to traditional business loans. Most micro financing lenders raise funds in a small duration as they run non-profit organizations.
Features of microfinance for small businesses
Following are the key features of micro financing in India for small businesses. They are:
- No need for collateral
The foremost feature of microloans is that there is no need for any collateral. The borrowers can easily obtain a microloan without offering any property to the financial institution as security.
- Shorter loan tenor
Due to the smaller loan amount, the loan tenor for micro credit is also shorter. Even though the borrower does not need to mortgage any property, they have to pay off the loan amount within the time set by the lending institution. If a borrower fails to repay the loan, the lender will seize his/her business or personal assets to recover the loss.
- Affordable for low-income individuals
Another important purpose of microfinance is to aid low-income individuals in the economy. It allows financially weak people to escape poverty. This is why people from rural and underdeveloped places and small businesspersons can obtain this loan without hassle.
- Small quantum loans
As the microloans are collateral-free, their borrowers usually belong to the people from the low-income category. They usually need credit in small amounts only. In India, micro financing companies normally provide small-scale business loans ranging from Rs 20,000 to 30,000.
- Reduces poverty
Microfinance is a vital economic tool that focuses on improving poor sections of the country by enabling financial institutions to create income opportunities for them. Moreover, it makes individuals running a small business and facing drawbacks due to financial shortages strengthen the business and secure its future.
Benefits of micro financing in India for small businesses
Running a business is indeed a tricky job. It requires a lot of hard work and dedication alongside financial backings. However, there are several problems every small business owner faces. This is why they are recommended to opt for microloans for small businesses.
Following are the key benefits of micro credit for small businesses. They are:
- The growth of income among poor households is gradually escalating due to the credit facilities offered by microfinance institutions.
- Potential borrowers running a small-scale business can borrow a business loan instantly via microfinance opportunities.
- Microfinance institutions help in generating employment opportunities by establishing jobs among needy communities.
- It helps provide the resources to aid the lower sections of society. Further, it focuses on women who have succeeded in forming business enterprises.
- Microloans improve the growth of the economic value of the country.
Small enterprise business owners must know a few tips to grow their business with the help of micro financing option.
Types of microfinance
Microfinance includes the following products:
- Micro savings
- Micro insurance
Types of loans under micro-financing
Following are the types of loans offered under micro-financing. They are:
- Loans for small entrepreneurs to start a business
- Loans for small entrepreneurs to expand business
- Loans for women to increase income generation
- Loans for home extension
- Loans for medicinal emergencies
Financial institutions offer pre-approved facilities that boost the lending process. They provide these offers on various financial products like business loans, personal loans, and more. Applicants can check their pre-approved offers by inserting details like their names and contact numbers.
In India, micro credit has been playing a vital role in diminishing poverty and improving the core of the economy of poor people in society. Plenty of private and public sector financial institutions lend funds to microfinance institutions that help small business owners overcome their financial problems and step ahead in the business world.