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The economic and banking significance of the small and medium enterprise (SME) sector is well recognized in the overall economy. These segments in the economy face difficulties in raising finance a lot of times. This is when the MSME or SME loans come into the picture and help such businesses establish themselves with the help of finance. This segment of businesses is responsible for offering huge employment opportunities at relatively lower capital costs. It also aids in industrialisation of backward and rural areas. By contributing highly to domestic production, significantly increasing export earnings, and by being operationally flexible, SMEs play a key role in the development of the nation.
MSME refers to Micro, Small and Medium Enterprises. It is sometimes also referred to as SME, which means, Small and Medium Enterprises. MSME and SME Loans are alternatively used for loans that are offered to businesses which fall within these two categories. These loans are mostly offered to start-up owners, small business owners and even women entrepreneurs. These are offered on a short-term basis. The duration of MSME / SME loans could vary from lender to lender depending on the business’s financial requirement. As MSME business loans are unsecured loans, there are certain minimum eligibility requirements which help the lender in mitigating any potential risk.
MSME loans help in meeting the funding requirements of small and medium-sized enterprises. These represent a major function of the general business finance market in which capital for different types of firms are supplied, acquired, and priced.
Bank of Baroda
Based on your business profile
PNB business loan
Kotak Mahindra Bank
IDFC First Bank
HDB Financial Services Limited
Tata Capital Finance
The eligibility criteria for MSME business loans will vary across lending institutions. But, we can generalize some criteria as follows:
The documents required for MSME business loans are:
The credit score is a 3 digit number used by lenders to evaluate your creditworthiness. It is auto-generated by the credit bureaus. Whether an individual or a business, it is essential for you to maintain a good credit score. A credit score of 750 and above is considered good and helps in easy loan approval. Those who do not have a credit score at all should start building one by getting loans or credit cards.
MSMEs should maintain a good credit score to qualify for the best business loans with low-interest rates. A good credit score will help MSMEs in obtaining a high loan amount to satisfy the purpose whether it be for business expansion, operational expenses, purchase of new equipment, refurbishing the office space, or any other expenditure.
MSME loan schemes are offered by Micro, Small, and Medium Enterprises (MSMEs) by various banks and NBFCs. Some of the MSME schemes offered by financial institutions and initiated by the Indian government are as follows:
CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is jointly set up by the Ministry of Micro, Small, and Medium Enterprises, Government of India, and Small Industries Development Bank of India (SIDBI). It is a trust launched in 2000 to provide financial institutions with credit guarantees to give loans to SMEs and MSMEs.
Features of the CGTMSE Scheme
According to the needs of the business
Micro and Small Enterprises involved in manufacturing and services up to Rs. 2 crores and retail trade of up to Rs. 1 crore.
Guarantee for credit facilities
Without any collateral security or third party guarantee
75% of the loan or limit not covered by collateral security
Loans can be availed from
Regional Rural Banks, Small Finance Banks, NBFCs, and enterprises like SIDBI, NSIC, NEDFi, etc.
CLCSS: Credit Linked Capital Subsidy Scheme is a subsidy scheme launched for the technology up-gradation of MSMEs.
Features of the CLCSS Scheme
6.5% for a period of 15 years
Sole proprietorship, private limited companies, tiny industries, partnerships, village industries, coir units
Eligible for working capital and term loans of Rs. 100 Lakhs per borrowing unit under this scheme
For Rs. 50 Lakhs - the guarantee cover is 75%
The guarantee cover for loans up to Rs. 5 Lakhs is 85%
80% for all loans that have been provided to NER and MSEs that are owned or operated by women.
The guarantee cover is 50% for any credit facility between 50 Lakhs and 100 Lakhs
Credit Guarantee Scheme For Stand UP India (CGSSI): The minorities in India, such as scheduled castes (SC), scheduled tribes (ST), and women find it difficult to establish themselves and thrive as entrepreneurs. This is due to a lack of finance or capital. The Government of India has launched a credit guarantee scheme to support these minorities.
Features of the Credit Guarantee Scheme
As per bank’s MCLR + tenure premium + 3%
Age Criteria and Eligibility
Minimum 18 years, SC/ST, or women
Minimum Rs. 10 Lakhs to Maximum Rs. 1 Crore
Maximum up to 7 years
At least 51% should belong to SC/ST or women entrepreneur
Mudra Yojana Under PMMY: Micro units development and refinance agency (MUDRA) loan scheme was initiated by the Government of India to help MSMEs get loans from banks and NBFCs.
Features of The Mudra Loan
As per the loan applicant’s profile and business requisites
Nil or 0.50% of the approved loan amount
Collateral or security
Not a requisite by banks/NBFCs
Up to Rs. 50,000 under the Shishu scheme
Between Rs. 50,001 to Rs. 5,00,000 under the Kishor Scheme
Between Rs. 5,00,001 – Rs. 10,00,000 under the Tarun scheme
Between 12 months to 5 years
National small industries corporation (NSIC) subsidy: NSIC provides integrated support services for various sectors including technology, support service, finance and marketing.
Features of NSIC:
PMEGP: The Prime Minister Employment Generation Program can provide the
required financial assistance for setting up a new project.
Features of PMEGP
Varies across lenders
Maximum project cost
The maximum amount for the manufacturing unit capped at 25 Lakhs
The maximum amount for service unit capped at Rs. 10 Lakhs
ranges between 15% to 35%
The minimum age should be 18 years
Institutions, business owners, charitable trusts, co-operative societies, and self-help groups
The petitioner’s education
Must have passed at least 8th standard
PMRY: Prime Minister Rozgar Yojana: This scheme aims to provide self-employment opportunities to the educated unemployed youth by setting up micro-enterprises.
Features of PMRY:
The normal interest rate shall be charged
Between 3 to 7 years post the initial moratorium
The monthly Income of the beneficiary along with the spouse or the income of parents is capped at 40,000
Should have been a permanent resident of the area for at least 3 years
Weaker sections of the society (SCs/STs/women)
There are several private sector banks which offer MSME loans at competitive interest rates. Mentioned below are some of the key banks and NBFCs that offer MSME business loans with attractive benefits.
1.Allahabad Bank- Allahabad Bank offers seven different types of loans to micro, small, and medium-sized enterprises.
Finance scheme for those who have availed banking facility with Allahabad Bank for the last 3 years and have a credit limit up to Rs. 10 lakhs.
This loan can be taken by individuals or firms trading goods and services.
This loan is to be used to finance hospital building, setting up a pathological lab, or a nursing home among others.
This finance scheme provides artisans with required working capital for raw materials and production process.
Financial scheme for those who are involved in weaving business.
To help increase credit flow for entrepreneurial activity in the non-farm sector.
Finance scheme for traders, firms, and companies in the transport business.
2. Oriental Bank of Commerce- The Oriental Bank of Commerce offers various MSME loans for its customers. Below are some of the MSME schemes:
Features of MSME Loans offered by Oriental Bank of Commerce:
3.Andhra Bank – Standby Term Loan
4.Central Bank of India - Construction Equipment Finance Scheme
5. Indian Bank - IND SME Secure
6. Punjab and Sind Bank - Multipurpose Business Loan / Mortgage Scheme
7. Punjab National Bank (PNB Professional Scheme)
8. State Bank of India (Simplified Small Business Loan)
9. Syndicate Bank (SyndUdyog)
10. UCO Bank (Udyog Bandhu)
11. Union Bank of India (Union Mudra)
12. United Bank of India (Transport Loan)
There are several aspects to be considered before applying for a MSME business loan. Once a business has a clear understanding of the specific needs, it’ll be easier to narrow the search and get the right loan.
2. Eligibility: While the requirements change from lender to lender, it’s important to fulfil the criteria to avoid getting the application rejected. The lender may also ask a business to furnish certain documents for verification and understanding it’s loan needs. Interest rate matters the most while seeking an MSME loan. If a business is stuck with a high-interest rate, it may have difficulty in making loan repayments on time. Also, the high interest translates into an expensive loan. Secured loans that require assets as collateral can help the business acquire a loan with low-interest rates. It is important to check the fine print with the lender before finalising the loan. Some of the commonly defined eligibility criteria for MSME loans include:
4. Securities: A business needs to back its loan with some sort of asset as security. MSME loans usually have two components under security—primary and collateral. Primary security is directly associated with the credit facility whereas collateral security is when the business pledges an additional asset. For example, the machinery that the business has purchased with the loan will count as primary security. The land or property that a business has pledged will be considered as collateral security.
5. Applying for MSME Business Loan: There are generally two ways of applying for a MSME loan. If the lender has an online facility, the applicant can fill the form with the required details and submit the application via the website. Alternatively, an applicant can also visit the nearest branch and request them for an application form. The documentation requirements can be understood from the customer care department or by visiting the official website of the bank. Some of the documentation requirements include:
1. Do all banks offer MSME loans?
All private and public sector banks in India have mandates prescribed by the central bank for lending to the MSME sector. As per RBI guidelines, domestic scheduled commercial banks (except small finance banks and regional rural banks) and foreign banks with more than 20 branches will allocate 7.5% of their Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure, to the microenterprises sector.
2. Is it possible to get MSME loans without collateral?
As per the RBI regulations, banks are allowed to offer MSME loans up to Rs.10 lakhs without seeking any collateral. In some cases, depending on the financial position and track record of the MSME units, banks can increase this limit to Rs.25 lakhs. Hence, providing collateral depends on the extent of the loan being applied for.
3. What is meant by priority sector lending and does it include the MSME sector?
Priority Sector Lending refers to lending to sectors that impact large segments of the population, are employment-intensive, and are weaker sections. The MSME sector falls under the priority sector and hence, can avail the benefits of priority sector lending. Some of the other sectors that can enjoy priority sector lending are education, housing, agriculture, and the export sector.
4. What if I take MSME loan and do not make repayment repay on time?
In cases where the borrower is unable to repay the loan to the bank or credit provider, he/she is liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or on the agreed day, at 3 times the bank rate notified by the RBI.
5. If I am an MSE entrepreneur, will I receive guidance from the banks apart from the loan facility?
Yes. As an MSE entrepreneur, you can receive the following services from banks apart from MSME loans:
6. Will I receive any support from the Government of India besides loans for my MSME business?
Yes. Apart from offering loans to the MSME sector, the Ministry of MSME extends support for the promotion of Information and Communication Tools (ICT), cluster development, skill development, improvement of manufacturing competitiveness, improvement of quality of products, etc. The Ministry also provides market support to the sector through the Marketing Assistance Scheme.
Edelweiss Insurance Company Collaborates With Ashv finance to Provide Digital Loans to MSMEs.25 Feb 2022
Digital insurance provider, Edelweiss Insurance has partnered with Ashv Financial services to provide financial assistance to all budding small and medium businesses. In this partnership, Ashv finance will aid the small business by contributing insta...
Digital insurance provider, Edelweiss Insurance has partnered with Ashv Financial services to provide financial assistance to all budding small and medium businesses. In this partnership, Ashv finance will aid the small business by contributing instant credit and Edelweiss insurance will ensure no obstacles by offering health insurance packages to safeguard the MSME sectors. The main objective of the collaboration is providing finance with protection to major cities across the country. The insurance package offered will depend on the loan amount availed and the tenure period.
Kinara Capital announced collateral free short-term loan for MSMEs28 Jan 2022
Kinara Capital has announced a short term working capital loan option for its present MSME customers. The loan is available in the range of Rs.50,000 to Rs.2 lakh with quick turnaround (TAT) and low processing fees, the loan will have a tenure period...
Kinara Capital has announced a short term working capital loan option for its present MSME customers. The loan is available in the range of Rs.50,000 to Rs.2 lakh with quick turnaround (TAT) and low processing fees, the loan will have a tenure period of 6-12 months to give MSMEs the option of fulfilling immediate business needs. MSME consistently runs on a tight budget and is often challenged with restricted cash flow when handling and changing business priorities like trying to fulfill a new purchase order, printing a new signboard, inventory, machines, etc. Hardika Shah says “By offering a quicker loan option to handle sudden business expenses, Kinara Capital is giving MSMEs leverage that can instantly dictate their turnover” in a statement.
Bank of Maharashtra enters into a co-lending partnership with Lendingkart To disburse MSME loans online27 Jan 2022
On 25 January 2022, the fin-tech startup Lendingkart technologies partnered with the Bank of Maharashtra to provide Low-cost MSME loans online. The browsers can avail loans up to Rs. 10 lakhs. Lendingkart has intended to make Credit available for Mic...
On 25 January 2022, the fin-tech startup Lendingkart technologies partnered with the Bank of Maharashtra to provide Low-cost MSME loans online. The browsers can avail loans up to Rs. 10 lakhs. Lendingkart has intended to make Credit available for Micro, small and medium enterprises (MSME) browsers with the latest Zero-touch technology of Lendingkart ‘2gthr’platform. The Bank of Maharashtra adopts a digital channel to facilitate a steady credit delivery to MSME borrowers. Also, this tie-up is Similar to its previous Co-lending partnership with Canara bank.
Canara bank enters into a co-lending partnership with Lendingkart To offer MSME loans online20 Jan 2022
On 18th January 2022, Lendingkart technologies announced its new co-lending partnership with Canara bank to offer up to Rs.10 lakh loan to all MSME units across India. The fintech start-up (Lendingkart)has assured that the loan will be upheld with a ...
On 18th January 2022, Lendingkart technologies announced its new co-lending partnership with Canara bank to offer up to Rs.10 lakh loan to all MSME units across India. The fintech start-up (Lendingkart)has assured that the loan will be upheld with a fast turnaround time powered by the “Lendingkart 2gthr" platform using the latest zero-touch technology. According to Canara bank's official statement, the main motive of this alliance is to facilitate the Micro, small and medium enterprises (MSME) browsers falling under the MUDRA category for better access to financial advantages.
Kotak Mahindra Bank Increases Access to MSME Loans 23 Sep 2021
Kotak Mahindra Bank has partnered with USAID (US Agency for International Development) and the DFC (US International Development Finance Corporation) to provide MSME loans to micro, small and medium enterprises and women borrowers. The bank stated th...
Kotak Mahindra Bank has partnered with USAID (US Agency for International Development) and the DFC (US International Development Finance Corporation) to provide MSME loans to micro, small and medium enterprises and women borrowers. The bank stated that MSMEs and women borrowers have been seriously impacted by the pandemic and this initiative aims to provide them the opportunity to rebuild and scale up their business.
Allahabad Bank MSME Loan
Andhra Bank MSME Loan
Bajaj Finserv MSME Loan
Bank Of Baroda MSME Loan
Bank Of India MSME Loan
Bank Of Maharashtra MSME Loan
Central Bank Of India MSME Loan
Indian Bank MSME Loan
Lendingkart MSME Loan
Oriental Bank Of Commerce MSME Loan
Punjab National Bank MSME Loan
Punjab Sind Bank MSME Loan
Syndicate Bank MSME Loan
UCO Bank Msme Loan
Union Bank Of India MSME Loan