Entrepreneurs and business owners have the opportunity to access Micro, Small, and Medium Enterprise loans. These loans are credit facilities extended by banks and Non-Banking Financial Companies to support small and medium-scale businesses. They come with flexible terms, often requiring limited or no collateral, and are accompanied by reasonable interest rates.
For a new business seeking MSME registration, an MSME loan serves as an excellent financial tool. It facilitates the efficient operation of the MSME and helps enhance its financial standing. This financial support can be utilised for purchasing advanced machinery, equipment, stock, covering employee salaries, and more. Ultimately, the loan empowers the growth and expansion of MSMEs.
MSME Loan Particulars
MSME loan particulars have been provided in the table below:
| Details | Particulars |
| Interest rate | Starting from 8.75% per annum onwards |
| Loan amount | No defined minimum limit; maximum up to Rs. 2 crores, adjustable as per business needs |
| Processing fees | Up to 3% of the sanctioned loan amount |
| Repayment tenure | Flexible tenure options ranging from 12 months to 15 years |
| Collateral/security | Unsecured business loans, hence no need for collateral/security |
| Foreclosure charges | Ranging from Nil to 5% of the outstanding principal amount |
| Credit facility type | Term loan (short, intermediate, and long-term), working capital loan, cash credit, overdraft, bill discounting, letter of credit, and bill of purchase |
Characteristics of MSME Loans
MSME loan come with several key features:
1. Flexible Repayment Periods: Borrowers can choose from flexible time intervals to repay the MSME loan, reducing financial stress.
2. Quick Approval and Online Disbursement: MSME loan are swiftly approved, with funds conveniently credited to the borrower’s MSME account through online channels.
3. Preventing Business Delays: The easy availability and rapid disbursement of MSME loans help avert disruptions in business operations.
4. Minimal Additional Costs: These loans are associated with minimal extra expenses, such as processing fees, and are devoid of hidden charges.
5. Low Interest Rates: MSME loans boast competitive interest rates, starting from as low as 8.75% per annum, facilitating cost-effective financing.
6. Boosting Small-Scale Enterprises: Small businesses can utilise MSME loans to enhance their operations, fostering growth and development.
7. No Collateral Requirement: Unlike many other loans, MSME loans do not necessitate collateral, easing the burden on business owners.
8. Supporting National Development: MSME loans contribute to the advancement of critical areas like technology, infrastructure, and enterprise modernisation across the nation, including Tier-2 and Tier-3 cities and towns.
Eligibility Criteria for MSME Loans
To qualify for an MSME loan, applicants must meet the following eligibility requirements:
1. Credit Score: A minimum credit score of 750 or above is needed.
2. Income and Turnover: The business should have min. annual income of Rs.2 lakhs, with a minimum turnover of approx. Rs.10 lakhs per year.
3. Repayment History: Applicants should have a positive repayment history.
4. Loan Default: There should be no prior loan defaults with any financial institution.
5. Age Requirement: The applicant or authorised signatory of the business must be between 21 and 65 years of age.
6. Work Experience: The applicant or authorised signatory should have worked in the enterprise or organisation for a minimum of three years and possess at least five years of experience in the business field.
7. Business Types: MSME loans are available to individuals, business owners, and MSMEs operating in the services, trading, and manufacturing sectors, including:
- Private limited companies
- Public limited companies
- Sole proprietorships
- Partnership firms
- Limited Liability Partnerships
MSME Loan Interest Rate 2023
The MSME loan interest rates for the year 2023 are as follows:
| Bank Name | Interest Rate |
| Indian Bank | 8.75% pa onwards |
| Central Bank of India | At own discretion of the bank |
| Punjab and Sind Bank | 9.05% pa onwards |
| Punjab National Bank | 9.60% pa onwards |
| State Bank of India | 8.25% pa onwards |
| Canara Bank | At the discretion of the bank |
| UCO Bank | 8.70% pa onwards |
| Union Bank of India | At the discretion of the bank |
MSME Loan Interest Rates of NBFCs
The MSME loan interest rates of NBFCs are as follows:
| NBFC | Interest Rate |
| Fullerton India | 17% pa to 21% p.a. |
| LendingKart | 15% p. to 27% p.a. |
| Mahindra Finance | At the discretion of the lender |
| Muthoot Fincorp | At the discretion of the lender |
Purposes of MSME Loans
MSME loans serve a wide range of business needs, including:
1. Business Startup and Expansion: Funding for initiating a new business venture or expanding an existing one.
2. Acquisition of Machinery and Equipment: Procuring essential machinery, plants, laboratory or testing equipment, furniture, electrical appliances, and more.
3. Purchase of Vehicles: Financing the purchase of vehicles required for business operations.
4. Building Construction and Property Acquisition: Funds for constructing commercial buildings or acquiring land and premises.
5. Product Launch: Capital to introduce new products or services into the market.
6. Working Capital Management: Meeting day-to-day operational expenses, including inventory replenishment, salary payments, and the procurement of goods and raw materials.
7. Marketing and Advertising: Financial support for marketing campaigns, advertising efforts, and promotional activities.
8. Miscellaneous Business Needs: Flexibility to address various other financial requirements that arise during the course of business operations.
Documents Required for MSME Loan
When applying for an MSME loan, applicants typically need to provide the following documents:
1. KYC Documents:
- Aadhaar card
- PAN card
- Passport
- Voter’s ID
- Driving licence
- Utility bills (e.g., electricity, water, gas) for address verification
2. Business Address Proof:
- Lease agreement
- Rental agreement
- Sale deed
- Utility bills (e.g., electricity, water, gas) in the business’s name
3. Bank Statements:
- Previous six months’ bank statements for the business account
4. Business Establishment Certificate or Incorporation Certificate:
- Proof of the business’s legal status and registration
5. Financial Statements:
- Profit and loss account for the previous two years
- Balance sheet for the previous two years
6. PAN Card and Income Tax Return:
- PAN card of the business
- Income tax return documents for the business
7. Additional Documents:
- Any other documents that the bank or NBFC may require to assess the MSME loan application.
Applying for an MSME Loan
Entrepreneurs have the option to apply for MSME loans through online or offline methods. Here are the steps for applying for an MSME loan online:
Online Application:
Step 1: Go to the bank or lender’s website and therein select the MSME loan scheme that suits your needs.
Step 2: Complete the online application form thoroughly and submit it electronically.
Step 3: A representative from the bank or lender will reach out to you to validate your loan requirements.
Step 4: The representative will request the necessary documents to authenticate the information provided.
Step 5: Following a successful verification of the documents, your loan request will be approved.
Step 6: The lender will share a loan agreement with you for your careful review and completion.
Step 7: Once the agreement is signed, anticipate the loan amount to be credited to your account within 48 hours.
Offline Application:
Alternatively, entrepreneurs can also apply for an MSME loan offline by visiting the nearest bank or financial institution branch:
Step 1: Visit the nearest bank or financial institution branch and request an MSME loan application form.
Step 2: Complete the application form thoroughly and include all the required documents, as indicated.
Step 3: Present the fully filled application form along with the necessary documents at the branch.
Step 4: The bank or financial institution will carefully assess your application and the provided documents.
Step 5: Once the verification process is successfully completed, your loan will receive approval.
Collateral for MSME Loans
MSME loans provided by banks or NBFCs can be either secured or unsecured business loans. The requirement for collateral depends on the specific loan schemes chosen by the borrower. In the case of collateral-free loans, borrowers are not obligated to pledge any assets or security to the banks or NBFCs to secure the loan amount.
MSME Loan Schemes
Banks offer various loan schemes tailored to the needs of businesses. Borrowers can explore the official website of their chosen bank to review the different MSME loan schemes available. Additionally, the government also facilitates MSME loan schemes through various banks and NBFCs. Some of the notable MSME schemes initiated by banks, financial institutions, and the government include:
1. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE): Provides credit guarantees to enable easier access to credit for micro and small enterprises.
2. Credit Linked Capital Subsidy Scheme (CLCSS): Offers subsidies for technology upgradation and modernisation of MSMEs.
3. Credit Guarantee Scheme for Subordinate Debt (CGSSD): Aims to support stressed MSMEs by providing credit guarantees for subordinate debt.
4. MUDRA Yojana under PMMY (Pradhan Mantri Mudra Yojana): Promotes the development and funding of micro-enterprises in India.
5. National Small Industries Corporation (NSIC) Subsidy: Provides various subsidies and benefits to small-scale industries.
6. Prime Minister Employment Generation Programme (PMEGP): Supports self-employment ventures by providing financial assistance.
7. Prime Minister’s Rozgar Yojana (PMRY): Encourages employment generation by assisting in setting up micro-enterprises.
8. PSB Loans in 59 Minutes: Offers quick loan approval and disbursement for MSMEs through a streamlined online process.
9. Standup India: Promotes entrepreneurship among women, Scheduled Castes (SCs), and Scheduled Tribes (STs) by providing loans for setting up greenfield enterprises.
10. Startup India: Supports startup enterprises with financing and incentives to foster innovation and entrepreneurship.
11. Equity Infusion for MSMEs through Fund of Funds: Aims to enhance the equity base of MSMEs by providing funds through various financial institutions.
12. SIDBI Make in India Loan For Enterprises (SMILE): Facilitates funding for businesses to promote the “Make in India” initiative.
Final Thoughts
MSME loans hold an important position in nurturing the progress and advancement of micro, small, and medium enterprises in India. They provide the necessary financial backing to entrepreneurs and business proprietors for commencing new projects, enlarging current ones, and managing diverse operational requirements. The inclusive availability of secured and unsecured choices, alongside numerous government-supported initiatives, ensures that MSME loans are within reach for a broad spectrum of businesses.
Moreover, the efficient application processes, competitive interest rates, and flexible repayment terms further enhance their appeal. By providing collateral-free options and supporting innovative initiatives, these loans empower entrepreneurs to realise their business aspirations and contribute to the nation’s economic progress. As MSMEs continue to drive economic vitality, the importance of accessible and tailored financial solutions like MSME loans cannot be overstated, offering a promising future for small and medium-sized enterprises across India.
