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Common problems faced while applying for SME/MSME Loans in India

Finance is one of the key factors that determine the success or failure of a business. This is especially true in the case of small businesses. Indian economy is constantly growing with new business ideas emerging each day; more particularly in the form of startups and small businesses. But almost one-third of them face hindrance in availing a business loan facility.

There may be situations where a loan from a not-so-favourable lender can have a long term impact on business growth. It often leads to paying hefty amounts of interest. Here is when NBFCs come to rescue. They not only have subsidised interest rates but also offer support in overcoming the problems faced in their application.

Let us have a look at the common problems that are encountered while applying for an SME MSME loans facility.


Loan applications are often regarded as lengthy and time-consuming ones. There is a general notion that to apply for one, you need to visit the branch office quite a few times. There is also a requirement of multiple documents to be submitted increasing the friction between the lender and the borrower. This consumes a lot of time of the business owners and they tend to lose interest in the loan process. At times, there may be applicants who do not have the requisite documents as stipulated by the regulator and it proves to be a hindrance.

Time for Processing

Some SME loan applications have unusually high processing times due to procedural requirements. This is observed among banking companies. Most loan applicants start as early as 25 years of age and still after a few years, the loan application might be under processing. This prolonged time for processing a loan application is often faced by new borrowers.


Collaterals are required to be pledged while applying for an SME loan. Pledging adequate value of collateral makes one eligible for an SME loan. First-time loan applicants or startup ventures more often than not lack adequate collaterals. This creates challenges in obtaining the required amount of funds from their lenders.

Rate of Interest

Even if all the above criteria are met, SME Loan interest rates are the final blow to a loan applicant. The real catch is not the interest rates but any ancillary charges levied by the lenders. There may be cases where the interest rate is reduced by a few basis points but consequently, processing charges are levied. This effectively leads to the same amount of outflow for the loan applicant. On the other hand, higher interest rates may create a cash flow crunch in the business as interest needs to be served consistently over each period.

Now that you are informed of the commonly faced challenges, you can check out Mahindra Finance for a hassle-free SME loan application. Get the right financer for your business by reading the fine print too!

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