Micro, Small, and Medium Enterprises (MSMEs) form the foundation of the business ecosystem. Whether you’re running a small manufacturing unit or managing a growing retail venture, having access to the right MSME business loan can make a real difference. But while many lenders and NBFCs are available, getting the right type of loan approved and disbursed isn’t always easy.
This blog breaks down five common roadblocks small businesses face when applying for a loan—and how to move past them with clarity and confidence.
1. Limited Access to Formal Credit
The problem:
A large number of small businesses don’t meet traditional bank requirements. Either there’s no prior credit history, or the business is too new to qualify for a formal loan.
What you can do:
- Maintain clean, digital transaction records. It’s important to build a credit history—without it, getting a business or MSME loan becomes difficult.
- Register your business and obtain a UDYAM certificate.
- Avoid taking a personal loan or goal-based loan for business needs. It’s important to establish an unsecured credit track record to qualify for a business loan at a better rate. Even using business credit cards wisely can help build this track record.
This is especially helpful if you’re applying for an MSME loan for a new business, where traditional collateral or long credit histories aren’t available.
2. Complex Documentation
The problem:
Loan applications often ask for detailed documentation—sometimes more than what a small business typically has.
What you can do:
- Maintain a monthly record of your sales in your current bank account.
- Obtain audited financials if your turnover is higher, as some lenders prioritize these for assessing creditworthiness.
- Use tools or apps that generate sales reports and GST filing reports.
- Get professional help when preparing documents—it can save time during the review process.
- Open a current account for your business.
Meeting the right MSME loan criteria starts with proper business registration and maintaining a proper current account.
3. Collateral Requirement
The problem:
Many MSMEs, especially first-time entrepreneurs or small-scale traders, don’t have the assets required to secure a bank loan. But honestly, you don’t always need them!
What you can do:
- Look for government-backed, collateral-free options like CGTMSE.
- Explore NBFCs and fintechs that offer unsecured business loans.
- You may also consider a personal loan, but only as a starting point, as personal loans usually have higher interest rates (typically 12%–24%) and shorter tenures.
However, it’s important to understand the risks of taking a personal loan for business purposes. Since it’s often harder to get a business loan from an NBFC initially, schemes like CGTMSE can be a great alternative. Under this scheme, you can access funds of up to ₹2 crore without providing any security or third-party guarantees.
4. Limited Awareness of Government Schemes
The problem:
While there are many government schemes supporting MSMEs, awareness remains low. As a result, many business owners miss out on funding they’re eligible for.
What you can do:
- Stay informed through bank updates, social media, MSME websites, and OPEN Capital blogs to learn about such schemes.
- Explore schemes like the MSME loan for women, Mudra, and CGTMSE, which offer funding without the need for collateral or third-party guarantees.
These schemes are designed to support both seasoned entrepreneurs and those applying for their first MSME loan for a new business.
5. Delayed Approvals or Disbursals
The problem:
Even after applying, delays in loan approvals can affect business plans, especially if funds are needed for urgent working capital or seasonal expenses.
What you can do:
- Submit complete and accurate details of your business and be proactive with the lender throughout your business loan application.
- Maintain a good credit score and repayment history.
- Choose lenders known for quick processing.
Some of the best MSME loan providers today—including digital-first platforms—offer faster, tech-enabled approval processes, often with real-time tracking and minimal paperwork.
Final Thoughts
Accessing the right MSME business loan doesn’t have to be a struggle. Whether you’re just getting started or looking to expand, the key is to understand the loan process, stay prepared, and choose the right partner.
If you’re applying for an MSME loan for a new business, looking into funding as a woman entrepreneur, or simply exploring better options, make sure you know the MSME loan criteria and what documents strengthen your application. And most importantly—don’t settle for the first offer. Look around and find the best MSME loan provider that fits your business goals.
At OPEN Capital, we help businesses find funding that fits. From application to disbursal, we make the process simple, transparent, and designed around your business needs.
