Use MSME Loan to Acquire / Buy Business

By Admin | 6 Jun, 2020

Use MSME Loan to Acquire / Buy Business
MSME Loan can be availed as Term loan or working capital loan for the following purposes:
  1. Term loan for acquisition of Fixed Assets (viz. Land / Building / Office Premises / Industrial Units / Plant / Machinery, and Other Fixed Assets) towards setting up of New Units and for Expansion, Modernization and Diversification in case of Existing Units. 
  2. Working capital requirement facility to meet the working capital needs of the MSME units in the form of open Cash Credit, Export & Shipping Credit, Overdraft, Hypothecation of Book Debts and Stock, whether of Raw Material or Finished Goods and Bill Discounting Facility. 
I am a new entrepreneur and I want to acquire / buy a ready running business / profession, can I then use MSME Term Loan to buy that business because it falls under expansion of existing business? 
The answer is yes. 
What is the limit? 
Banks normally provide loans up to 10 lakhs without asking for any collateral or security to any Micro, Small and Medium Enterprise. And there is no Limit against Collateral Security. 
What if I want to purchase a business which is more than INR 10 lakhs? 
The government of India provides a Credit Guarantee Cover for Collateral Free Loans to Micro, Small and Medium Enterprises. Such a cover is available under the Credit Guarantee Trust Fund for collateral free loans upto INR 1 Crore. 
Will there be any guarantee fee? 
A guarantee fee will be charged. However, in some cases the banks also pay or share the cost of the guarantee fees. You may ask your bank for this facility. 
Can a bank reject my loan application? 
Yes. Banks will certainly do reject the loan application, if they are not convinced about the viability of your business. However, banks need to inform the reasons for rejection. 
The funds will be released through banking channel, requiring documents like basic KYC of entrepreneur, Income Tax returns, Good CIBIL score, GST Records and the most important is Project report describing how the projects will be commenced/ setup and how the funds raised from the bank will be returned. 
There is no fixed format of Project Report; however a project report must consist of basic detail of all aspects which may impact the Banker funding the project like:
1. Introduction 
2. Founders complete detail along with their experience
3. Techno Feasibility report
4. SWOT analysis of your products
5. Location of project and facilities available
6. Manufacturing process
7. Applicability of licenses
8. Means of financing
9. The financial cost of project
10. Profitability statement
11. Conclusion
 Please download the free guide on how to make project report.