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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.
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.
Paytm to Offer Instant Digital Microloans to MSMEs in Partnership with Suryoday Small Finance Bank9 Dec 2020
Paytm has partnered with Suryoday Small Finance Bank to offer instant digital loans via the Paytm app to small businesses. The financial services platform aims to provide access to microloans for businesses that find it a challenge to avail credit fr...
Paytm has partnered with Suryoday Small Finance Bank to offer instant digital loans via the Paytm app to small businesses. The financial services platform aims to provide access to microloans for businesses that find it a challenge to avail credit from traditional lenders. Borrowers don’t have to visit the bank website to get a loan. Instead, the entire process from loan application to approval will be done on the Paytm for Business app. Once approved, the loan amount will be credited directly into the bank account of the borrower. Paytm aims to disburse loans to over 1 lakh small businesses in the next 12 to 18 months, via this partnership.
Deadline for Loans under ECLGS Extended until 30th November3 Nov 2020
The Union Government has extended ECLGS (Emergency Credit Line Guarantee Scheme) for MSMEs until 30th November 2020. Initially, the scheme was to end by October. However, since the ECLGS didn’t reach its target of loans worth Rs. 3 lakh crore, the go...
The Union Government has extended ECLGS (Emergency Credit Line Guarantee Scheme) for MSMEs until 30th November 2020. Initially, the scheme was to end by October. However, since the ECLGS didn’t reach its target of loans worth Rs. 3 lakh crore, the government has decided to offer one-month extension for applications. Currently, the ECLGS scheme has disbursed loans worth Rs. 1.48 lakh crore to 60.67 lakh borrowers. The ECLGS scheme was launched as part of the Aatmanirbhar Bharat package announced in May to help ailing businesses offset the financial stress due to the lockdown. The scheme offers collateral-free loans to MSMEs for a maximum tenure of four years, including a one-year moratorium on principal repayment. The scheme is available at traditional banks and NBFCs.
Interest Subvention for MSMEs at Co-operative Banks Extended till March 20219 Oct 2020
The RBI has announced that the interest subvention offered to MSMEs at co-operative banks has been extended until the end of FY 2020 – 21. The interest subvention scheme was initially announced in November 2018 for two years. As per the scheme, all e...
The RBI has announced that the interest subvention offered to MSMEs at co-operative banks has been extended until the end of FY 2020 – 21. The interest subvention scheme was initially announced in November 2018 for two years. As per the scheme, all eligible MSMEs can avail an interest relief up to 2% at co-operative banks. The scheme covers all term and working capital loans up to Rs. 100 lakhs availed by MSMEs. The extension comes as a huge relief for MSMEs ailing due to the financial stress caused by the Covid-19 pandemic. The RBI has notified co-operative banks to take appropriate action for the successful implementation of the extension.
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