The first thing that needs to be understood before making sense of whether an MSME loan is better than liquidating your savings is, what is an MSME loan? The word MSME is the acronym for micro, small and medium-sized enterprises. MSME loans are those loans that fund the development and growth of firms that fall under these small and medium-sized enterprises. Mostly these companies don’t have large capitals and the loans these companies borrow come from local banks. To opt for an MSME loan you can always look up for online registration. However often entrepreneurs think of liquidating their savings to fund their companies and not opt for loans in fear of confiscation of collateral. However, it always makes a greater sense of taking an MSME loan than liquidating savings.

Every small businessman faces the issue of whether they would choose to liquidate their lifetime of savings or whether they would opt for an MSME loan. Though liquidating the entirety of your savings has its own benefit of not repayment or confiscation, it is always advisable to take an MSME loan, for greater expansion of enterprise and larger production. For this, you need to make a good rapport with the bank from which you’re taking a loan and also keeping your credit score clean.

 

There are several reasons as to why MSME loan should be preferred over the liquidation of personal savings:

Emergencies can arise at any juncture and not keeping your savings at hand is neither very advisable nor very wise. Any kind of emergency whether personal or at the company is very unprecedented and it’s always better to keep savings whether in cash or in the bank handy. In case you want to avoid paying debts, it is significant to remember that often emergencies that demand immediate funding are resolved through savings. In case you invest all your savings in view of the fact that the MSME loan process is a very lengthy and complex one, you might be forced to take personal loans later when a financial emergency arises.

MSME loan eligibility doesn’t demand much documents and often these loans come with lesser interest rates than personal loans. Further, there are a great variety of business loans that you can opt for without worrying about the interest rates as they come with a greater choice in interest rates.

Keeping your savings intact without liquidating them to invest in your company can be financially more beneficial as you can get returns to your savings. Your MSME enterprise can run with safer and cheaper loan options and you can earn easy returns and dividends that will form a part of your income. The money you get as return by investing your savings will earn you more than what you pay as interest for your MSME loan. In case you exhaust all your savings in your MSME enterprise you might have difficulty in securing a business loan in the future when the need arises. Your credit profile in such a case will be vastly poor and thus no bank will trust you with any further loan.

Your MSME loan repayment might allow you tax benefits as brownie points. The interest you pay on your loan is mostly tax deductible. Thus when you invest your savings in the stock market or as a fixed deposit you earn a dividend income and at the same time, you save a large part of your taxable payment by repaying your loan interest at regular intervals.

Securing a loan for your small business might be a lengthy process, but once you get one, it is ensured that you share a good relationship with the bank. To make this stronger you should always repay your debts as a when required. But in such a case you are sure to have the support of the bank and thus you can borrow and expand your business as and when you require. The flexibility of the amount you can borrow increases to a greater extent when you secure a loan. In case you rely entirely on your savings you will have nowhere to go when you exhaust that sum. And once you have exhausted your savings, your credit score though clean is not very reliable and thus it becomes to secure a business loan when you really need it.