MSME Loan Scheme

September 20, 2022

banner

Every day a piece of news creeps into our ears that a company has added new feathers to its success story, and we can’t help but get dragged to reading the plot. The journey from being a Micro, Small, and Medium Enterprises (MSME) to a giant shark in the ocean requires hard work and finance. MSME loan for new business helps nurture an organization in its financial aspects.

Like the bull of the share market, rule the business world by getting the necessary funds with utmost ease. We have prepared this comprehensive guide to MSME loan details to make it easy. Hop In!

What is an MSME Loan

An MSME loan is an amount of money an entrepreneur receives to run their business. MSME or a Micro, Small and Medium Enterprise can avail of loans that will act as working capital and can invest the amount towards expansion, procuring a new machine or a piece of equipment, paying salary and wages etc. The MSME loan interest rate depends upon the bank you choose. The Government of India understands the importance of MSMEs being an economic boost and aims to provide various schemes to aid multiple types of businesses with their innumerable needs.

MSME Policy 2022-23

The MSME policy for the year 2022-23, as designed by the Reserve Bank of India (RBI), mentions the role of the bank and its approach toward meeting the requirements of the MSME clients. Understand the MSME policy in a better way by going through the following pointers:

  • With the help of active loan promotion, the Policy hopes to increase the MSME clientele.
  • The Policy considers the existing MSME clients’ credit demands to make wise and timely loan decisions.
  • The Policy outlines how the Bank views flexibility and innovation on the one hand and skills and techniques for credit appraisal on the other.
  • The Policy document makes an effort to guarantee that the Bank addresses the socioeconomic commitments adequately.
  • The officials have developed this policy following all RBI and current regulatory guidelines that have been released to date.
  • All domestic branches must abide by the rules outlined in the policy.
  • All forms of MSME customers, including sole proprietorships, partnerships, limited liability companies, associations of people, and businesses registered under the Indian Companies Act, SHG, JLG, cooperative societies, etc., would be covered by the policy.

Features, Benefits, Fees & Charges

Business persons use the MSME loan to conduct various activities related to business. The following points highlight MSME loan details like features, benefits, and charges.

Benefits and Features of MSME Loan

The features of MSME business loans are:

  • The rate of interest depends upon the profile of the applicant and the requirement of their business
  • The loan repayment tenure usually ranges from 12 months to 5 years. The term may exceed the requirements
  • The collateral or security is not required in the case of MSME loans as these fall in the category of unsecured loans
  • A few banks and financial institutions offer this subsidy facility
  • The borrower can use the acquired funds as a working capital loan or term loan towards bill discounting, overdraft, cash credit, bill of purchase, merchant cash advance, letter of credit, or loans under govt. Schemes, etc.
  • A business person can borrow a maximum amount of INR 2 crore.

Fees and Charges of MSME Loan

Following are the fees and charges of the MSME loans:

  • Each financial institution has its own set of charges for processing fees. Generally, the processing fee ranges between 0 to 4% of the total amount of loan sanctioned
  • The foreclosure charges range between 0 to 5% of the principal outstanding amount. The rates may differ from lender to lender
  • A percentage of up to 4% of the principal amount due is charged on pre-payment by the lenders

MSME Loan by Top Banks/NBFCs

MSME loan interest rates by top banks or NBFCs are given below in the table:

Bank/NBFCs Interest Rate
HDFC Bank 10.00% – 22.50% p.a.
FlexiLoans 1% per month onwards
ZipLoan 1% – 1.5% per month (Flat ROI)
Axis Bank 14.25% – 18.50% p.a.
IDFC First Bank 14.50% onwards
Kotak Mahindra Bank 16% – 19.99%
Fullerton Finance 17% – 21%
Bajaj Finserv 17% p.a. onwards
RBL Bank 17.50% – 25% p.a.
ICICI Bank 17% onwards
Indifi Finance 1.5% per month onwards
Lendingkart Finance 1.5% – 2% per month
Tata Capital Finance 19% p.a. onwards
NeoGrowth Finance 19% – 24% p.a.
Hero FinCorp Up to 26% p.a.

Note: The interest rate stands true for the month of Oct. 2022

Popular Banks offering MSME Loans in India

The popular banks offering MSME business loans are:

State bank of India

Interest Rate 9.65% p.a. onwards
Processing Fee Up to 2% of the loan amount
Loan Repayment Tenure Up to 120 months
Loan Amount Depending on the scheme

Note: The interest rate stands true for the month of September 2022

HDFC Bank

Interest Rate 15.75% p.a. onwards
Processing Fee 0.99% of the loan amount
Loan Amount Up to Rs.50 lakh
Loan Repayment Tenure Up to 48 months

Note: The interest rate stands true for the month of September 2022

Top NBFCs Offering MSME Loans

The following table explores the top NBFCs offering MSME loans:

Bank Name Interest rate
Lendingkart At the discretion of the lender
Fullerton India 17% p.a. to 21% p.a.
Mahindra Finance At the discretion of the lender
Muthoot Fincorp At the discretion of the lender

Note: The interest rate stands true for the month of September 2022

MSME Registration

It is necessary to know the process to register a company with MSME. You must follow the depicted steps for the same:

  • Search for the official portal of the UDYAM Registration
  • If you are yet to register, click on ‘New Entrepreneurs’ as MSME or EM-II
  • The new page requires you to enter your 12-digit aadhaar number and the name associated with the mentioned aadhaar number. Confirm the undertaking after reading it and proceed with ‘Validate & Generate OTP.’
  • Authenticate by entering the OTP and entering your PAN and organization details.
  • The following step will require you to enter your personal information and industry-related details
  • Once satisfied with the entered information, click on ‘Submit and Get Final OTP’. Enter the OTP sent to your registered mobile number.
  • Congratulations! Once you provide the information mentioned, your MSME registration is complete.

Eligibility Criteria for MSME

This section answers the question – who is eligible for MSME? To understand if an applicant meets the MSME loan eligibility criteria, they must be aware of the following:

  • The applicant’s credit score must be 750 or higher
  • The operational time of the business must exceed at least one year
  • Though this eligibility varies from bank to bank, the turnover of the company must be at least INR 12 lakhs
  • The applicant must be between the age of 25 – 55
  • There must not be a loan defaulter’s record under the applicant’s name
  • The business must have at least one year of ITRs filed.

Documents Required for an MSME

The applicant must gather the required documents to ensure a hassle-free process when applying for an MSME business loan. Prepare the following documents beforehand to get done with the application process  in minimal time:

  • You will have to provide primary documents like a PAN card, Aadhaar card, driving licence, voter’s ID, or any other government-approved ID for KYC verification
  • Rent agreement, electricity bill or passport can be used as proof of residence
  • You must submit copies of the GST return, the past six months’ bank statement, and the statement of profit and loss as proof of the financial aspects of the business.
  • Be ready with the documents associated with the business registration as proof of business ownership.
  • Passport size photographs

MSME Loan Schemes Initiated by the Government of India

The MSME loan schemes initiated by the Government of India are given below:

Credit Guarantee Scheme

The government implemented the Credit Guarantee Scheme to enhance the credit delivery system and make funding for the MSME sector easier. If you are a new or existing SME in the manufacturing or service industries, you are eligible to apply for CGS. Retail trade, agriculture, Self-Help Groups (SHGs), and training institutes, to name a few, are not included in this category.

Pradhan Mantri Rozgar Yojana (PMRY)

Pradhan Mantri Mudra Yojana (PMMY), launched in 2015, is run by the Micro Units Development and Refinance Agency (MUDRA). This program attempts to offer loans for various industries involved in manufacturing, trade, and services.

PSB Loans in 59 minutes

The government created a new website, the PSB Loans in 59 Minutes Portal, to provide Mudra and MSME loans for new businesses. The PSB Loans Portal will handle all loan requests within an hour. After acceptance, the loan will be disbursed to the applicant’s company within the next seven to ten working days.

Standup India

One of the most significant small business loans for startups is Stand Up India, which assists at least one SC or ST community member and one woman borrower in each branch. They get bank loans ranging from INR 10 lakh to INR 1 crore to expand their enterprises. Companies engaged in manufacturing, services, or trading are eligible for the standup plan.

Other MSME loan schemes initiated by the Government of India

  • MUDRA Yojana under PMMY
  • National Small Industries Corporation (NSIC) Subsidy
  • Startup India
  • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
  • 2nd Loan for up-gradation of the existing PMEGP/MUDRA units
  • Micro & Small Enterprises Cluster Development Programme (MSE-CDP) Scheme
  • Scheme of Fund for Regeneration of Traditional Industries (SFURTI)
  • The Prime Minister Employment Generation Programme (PMEGP)
  • International Cooperation (IC) Scheme
  • Credit Linked Capital Subsidy Scheme (CLCSS)
  • Entrepreneurship Skill Development Programme (ESDP) Scheme
  • A Scheme for Promotion of Innovation, Rural Industries, and Entrepreneurship (ASPIRE)
  • Coir Vikas Yojana – Umbrella Scheme
  • Assistance to Training Institutions (ATI) Scheme
  • Self Reliant India (SRI) Fund
  • Promotion of MSME in NER and SIKKIM
  • Procurement and Marketing Support (PMS) scheme
  • National SC-ST Hub Scheme
  • Khadi Gram Udyog Vikas Yojana – Umbrella Scheme
  • Gramodyog Vikas Yojana
  • MSME Champions Scheme

Factors affecting MSME Loan Interest Rates

The MSME loan interest rates provided by various private and public sector banks, Non-Banking Financial Institutions (NBFCs), Small Finance Banks (SFBs), Regional Rural Banks (RRBs), and Micro Finance Institutions (MFIs) depend on the following variables:

Loan Amount

The amount of loan required by an MSME to function highly influences the rate of interest charged by the bank or other financial institutions. The higher the amount the more the interest will be and vice versa.

Business Annual Turnover

Any lender would be reluctant to provide credit to a borrower who lacked solid financial foundations. As a result, a company with strong financial standing will be a good candidate for a loan because it can be sure that the borrower will make timely payments. As a result of the lower risk associated with lending, a successful business may also qualify for cheaper interest rates. This is crucial to determine whether the applicant can afford the suggested loan amount.

Company’s Credit Rating

One of the main elements influencing the interest rate on an MSME business loan is the creditworthiness of a business, as determined by its credit score or credit rating. For any lender, lending is a dangerous endeavour, and the only way to assure that they are lending to a creditworthy company is to check their business credit score. The promoter’s or founder’s personal credit score is taken into consideration if the company is small or lacks its own credit history. A high credit score will give the borrower a significant advantage in getting loans at low-interest rates.

Nature Of Business

Every company has a unique business model. Some may be service-oriented, while others may be production-oriented. Due to a variety of variables, certain firms also bear a more considerable risk. Therefore, the interest rate paid on the business loan may vary based on how the lender perceives the risk associated with the business.

Calculating an MSME Loan EMI

You can calculate the MSME loan EMI using the online calculator provided by various websites. The calculator considers factors like loan amount, tenure and interest rate and provides the user with an accurate result of the EMIs. Those, who wish to calculate an MSME loan EMI manually, must remember the following formula:

 EMI = P x r x (1+r)n/ (1+r) n-1

Here, ‘P’ stands for the principal amount, ‘r’ stands for the rate of interest and ‘n’ stands for the tenure.

New MSME Categorisation

The distinction between manufacturing and service organizations has been eliminated by having identical investment amounts and yearly turnover for businesses operating in both sectors. The following table represents the new categorization of the MSME loan for new business:

Sector/Enterprise Type Micro Enterprise Small Enterprise Medium Enterprise
Manufacturing and Services Sector, Both Investment less than INR 1 crore Turnover less than INR 5 crore Investment less than INR. 10 crore Turnover up to INR 50 crore Investment less than INR 50 crore Turnover up to INR  250 crore

How to Apply for MSME Loan?

You can submit your application for an MSME loan in one of two ways. If the lender offers an online application process, you can fill out the form with the necessary information and submit it online.

Alternatively, you can ask for an application form when you visit the local branch. You can contact ahead and find out what kind of documentation is needed.

What to do and not to do when applying for an MSME loan Online

MSME loan requires a lot of consideration when applying for it. Following are the dos and don’ts when applying for an MSME loan online.

Dos

Before applying for an MSME loan scheme, you must take the following pointers into account:

  • Before moving forward with an MSME or SME loan application, check your credit score. The majority of lenders base their initial loan approvals on credit scores.
  • Prepare your supporting documents before beginning the loan application procedure. At the time of application, make sure you have all the necessary documents in digital format.
  • Make a business strategy that details how you’ll use the loan money and how long it might take to see a return on your investment. Even though not all lenders want one, it is good to be prepared with a business plan to allay their worries.
  • Before applying, consider your MSME loan criteria. Avoid estimating or underestimating the amount of money you need for a loan, as you will waste time and money.

Don’ts

Before applying for an MSME loan scheme, one must make sure they don’t do the following:

  • Applying to several lenders will lower your credit score by many points, so avoid doing so. Additionally, it demonstrates your financial plight, which could turn off potential lenders.
  • Even if you are using the MSME loan to consolidate your debts, do not put off making payments on your current loans.Your financial reputation and credit score get a negative impact due to such steps.
  • Avoid using lenders who want an upfront payment. Many dishonest lenders operating in the online market could demand astronomical fees before approving your application for an MSME loan. A trustworthy lender never requires payment in advance and only takes a percentage after loan disbursal.

MSME Customer Care

The following contact details can be accessed if any problem is faced regarding an MSME business loan.

Address: Udyog Bhawan, Rafi Marg, New Delhi – 110011 Customer Number: 011-23063288

Web Information Manager

Address: Room No 468 C, Udyog Bhawan, Rafi Marg, New Delhi – 110011

E-mail ID: mayapandey.dgca@gov.in

UDYAM Registration

For Technical Queries: 011-23062354

For UDYAM Registration: 011-23063800

Prime Minister’s Employment Generation Programme (PMEGP)

For queries related to a scheme: 011-23063641

Related Resource
Pradhan Mantri MUDRA Yojana
All About Dairy Farm Loan: Online Procedure
Startup Business Loans
10 Business Loan Schemes for Women Entrepreneurs
How to Avail a Business Loan with Bad Credit?
How to Take Business Loan under CGTMSE Scheme?
Unsecured Business Loan

Frequently Asked Questions For MSME Loan

Is GST mandatory for MSME Loans?

No, GST is not mandatory for MSME loans. The requirement of having a GST number depends upon the nature of your business.

How do I get a loan for my business from MSME?

The Government of India offers various startup and MSME loan schemes. You can opt for those schemes by getting a loan from a bank or an NBFC.

Is MSME loan interest-free?

No, an MSME loan is not interest-free. The interest rate varies from bank to bank.

Is there any turnover limit for MSME Schemes?

Yes, there is a turnover limit for MSME schemes.

Which bank is best for an MSME loan?

You must evaluate the various schemes offered by the different banks and choose the bank that aligns with your business needs.

Is there any validity of the MSME certificate?

No, there is no validity of the MSME certificate

Is credit score important for MSMEs in getting MSME loans?

Yes, the credit score is essential for MSMEs in getting MSME loans. The credit score determines the amount of loan you can get and the rate of interest.

How can I get collateral-free MSME loans?

You must have a discussion with your bank about the collateral-free MSME loan limit.

Tushar Gautam is a content writer inclined to enlighten his readers about the world of finance through Urban Money.

Looking for something more?

Need Loan Assistance?
please enter your name
+91

Verified

please enter your vaild phone number please verify your phone number Otp resend Sucessfully

Resend OTP

please enter your otp please enter valid otp
Please Select City
Please Select Loan Type
score
Get Best Offers
please enter your name
+91

Verified

please enter your vaild phone number please verify your phone number Otp resend Sucessfully

Resend OTP

please enter your otp please enter valid otp
Please Select City
Please Select Loan Type

Need Loan Assistance?