MSME Loan: Features, Benefits, Eligibility, Registration And How To Apply

MSME (Micro Small Medium Enterprise) loan is ideal for business entrepreneurs running small or medium scale enterprises. According to the MSMED or Micro, Small and Medium Enterprises Development Act of 2006, the Indian Government launched the MSME enterprises that are usually involved in developing, manufacturing and processing goods or services.

This article gives a detailed account of the MSME loan – definition, features, benefits, interest rates, eligibility, documents needed and how to apply for it online. Read on!

What is an MSME or SME Loan?

MSME (Micro Small Medium Enterprise) or SME (Small Medium Enterprise) loan is a credit facility provided to small scale businesses. The MSME loan scheme offers you the opportunity to improve the financial status of your business alongside purchasing advanced equipment, machinery, stock, paying salaries to employees etc. Moreover, opting for this loan can help you enlarge your business.

Renewed Definition of MSME Loan

The Indian Government declared an updated definition of MSME on May 13 2022. Following is the newly organised definition: 

• The conditions for MSME organisations are modified to Investment and Annual Turnover instead of only Investment. 
• The Indian Government has enhanced the limit of investment for MSME organisations. This has made many small scale enterprises grab the benefit of MSME business loans. 
• Conditions for Micro Small Medium Enterprises engaged in production and services are given below in this following chart: 

Factors	Medium	Small	Micro
Investment	Does not surpass Rs. 50 crore	Lesser than Rs. 10 crore	Lower than Rs. 1 crore
Turnover (Total Sales)	Can be up to Rs. 250 crore	Maximum limit is Rs. 50 crore	Lesser than Rs. 5 crore

Features of MSME Loan

The vital features of MSME or Micro Small Medium Enterprises loan are discussed below: 

• You can take advantage of MSME loans irrespective of the purpose you desire in your business. It can be to purchase new machinery or upgrade the old machinery, expand your business, along with enhancing its production level. 
• The MSME loan scheme offers flexible time intervals so that you can repay the money without any hassle.
• You don’t have to worry about the loan’s approval. It will be done within some days after you become eligible for it and submit the following documents. After the loan is approved, the money will be credited to your account online. 
• MSME loans have very minimal additional costs, including processing fees and the cost of the loan you have borrowed. But it has no hidden and further charges. 
• MSME loan interest rate is low and begins from 7.65% per annum. 

Benefits of MSME Loan

The favourable factors that will make you go for this loan are:

Easily Accessible

While starting a new business, the most time-consuming factor involved is to avail of the initial capital. Similarly, an entrepreneur will face the same issue of raising capital at the time of running previous business. But when you take an MSME loan, the entire process could become easier. 

Rate of Interest

Another feature of MSME loans is their low interest rates. Paying too much interest could be a hassle for many. Thus, if the interest rate gets a bit reduced, you can save that extra portion of the money. However, the final rate is decided by the lender based on several parameters.

Efficiency

Mainly, small scale companies take advantage of MSME loans for the betterment of their business. There is no long-term assurance in it, so it is flexible and efficient. Being short-term, it maintains smooth cash flow besides proper allocation of assets.

Collateral-Free Loans

An MSME loan doesn’t require to pledge any collateral. MSME or SME loans are intended to aid the small, micro, and medium scale enterprises productively and financially.

Fast Funding 

After you apply for an MSME loan to scale your business, you don’t have to wait for a long time. All you have to do is visit their website, read the MSME loan details and necessary conditions and submit the essential documents. The loan amount would be credited to your account within a few days. 

MSME Loan Interest Rates from Top Banks (2022)

MSME loan interest rates offered by the top Indian banks are given in the table below:

Name of the Bank	Interest Rates (Per Annum)
HDFC Bank	11.90% – 21.35% p.a.
State Bank of India (SBI)	7.65% p.a. onwards
ICICI Bank	13% p.a. onwards
Axis Bank	14.25% – 18.50% p.a.
Central Bank of India	11.25% p.a. onwards
Indian Bank	9.75% p.a. onwards
Syndicate Bank	Up to bank
UCO Bank	8.85% p.a. onwards
United Bank of India	10.25% – 16.25% p.a.
Punjab National Bank	Up to bank

Who is Eligible for an MSME Loan?

Financial institutions or loan providers have given some necessary eligibility conditions for individuals or companies to follow before taking MSME loans. They are: 

• The minimum age of a person for taking the loan must be 22 years, and the maximum is 65 years during the maturity period. 
• The private sector enterprises or small scale business organisations are eligible to take SME loans.
• A business must earn a minimum income of 2 lakhs per year, and their minimum turnover per every year should be around 10 lakhs. 
• The borrower must have worked in the associated organisation for a minimum of 3 years and have a minimum experience of 5 years in the business field. 

Also Read: What Is A Small Business Loan? Benefits, Types And Other Features

Documents Required for MSME or SME Loan

You need to submit the following documents for an MSME loan: 

• PAN Card and Aadhaar Card of the borrower
• Business establishment certificate
• KYC documents for the borrower and his/her organisation
• Address proof of the organisation
• Last six months, bank and income tax statement
• Income tax returns of the company for the last 2 years 
• Financial statements for the last 2 years 

How to Register Yourself as an MSME?

How to Apply for MSME Loan?

The following steps to apply for MSME loans are:

• Visit the online website of your lender, follow the instructions and fill out the application form accordingly. 
• Soon, a representative of the lender or the financial institution will call you and advise you about the policy that can be perfect for you. 
• After you become eligible, they will ask you to submit some documents. These are to be scanned properly and submitted within the time specified. 
• You can also directly go to the nearby financial institution and ask your lender to take the required documents. 
• With the verification of documents, your loan request will be approved. The lender will send an agreement that you need to sign to complete the process. 
• Lastly, the loan amount will be credited to your account within 48 hours after signing the agreement. 

Also Read: All You Need To Know About Availing A Business Loan Without ITR

MSME Loan Schemes Organised by the Government of India

Indian Government have launched some MSME loan schemes to provide financial support to the small scale businesses ruined during COVID-19. The names of those schemes are:

• Pradhan Mantri Mudra Yojana (PMMY)
• Prime Minister’s Employment Generation Programme (PMEGP)
• Credit Guarantee Scheme for Subordinate Debt (CGSSD)
• MSME Business Loan for Start-ups in 59 Minutes
• SIDBI Make In India Loan For Enterprises (SMILE)
• Equity Infusion for MSMEs through Fund of Funds
• Credit Linked Capital Subsidy Scheme (CLCSS)
• Credit Guarantee Trust Fund for Micro & Small Enterprises (CGT MSE)

Final Word

MSME loan has been an incredible helping hand, particularly for small enterprises. It provides them with adequate financial support for improving production, thereby enhancing the business. But before taking any decision, always make a proper plan and follow the necessary criteria mentioned above.

FAQs on MSME Loans

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.