Getting Ready for a Loan

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How Lenders Evaluate Application For an MSME Loan?

How Lenders Evaluate Application For an MSME Loan?

Your request for MSME Loan will have greater chances of success if you can satisfy the lending criteria set out below:

Good Cash Flow

As a borrower, you have greater chances of success if your operations are  profitable and generate sufficient cash to cover all commitments.

Your Own Equity Contribution

You must have a reasonable amount of your own money invested in your business. This shows how committed you are to the success of your business venture. Value of invested assets should be substantiated by invoices, financial statements or appraisal as a proof. Your debt to equity ratio indicates your ability to survive ups and downs

Adequate Security

You will not obtain credit from a bank if all your assets are already pledged to other lenders.


Most institution likes to know that you have a good record of success in business. It is difficult to convince a banker to lend you money if you are complete beginner, or if you are starting a completely new trading activity with untried products and unknown customers or suppliers in countries you have never dealt with before.

Good Reputation

our references and credentials must be acceptable to lenders. They would no doubt find it difficult to convince their loans committee or board to approve an advance to a bankrupt company or a known crook! But, even assuming that your past is without blemish, it is helpful to have the backing of a reputable sponsor. This could be a well-known person in business, your trade association or even your customer or supplier.

Specific Purpose

Although some lenders grant overdraft facilities on the basis of the security you offer, most institutions prefer to link their loans to specific transactions. Transactions must be explained in full detail and shown to be profitable and self-liquidating (money borrowed will be repaid from proceed of transactions to be financed).

Source: An Extract from “How to Approach Banks in India?” – A joint publication by International Trade Centre (Geneva) and SIDBI, 2002