A small business’s ability to obtain funding is frequently essential to its success, especially for Micro, Small, and Medium-Sized Enterprises (MSMEs). Financial institutions worldwide provide customized MSME loans that are suited to small company owners’ particular requirements and difficulties to promote growth and sustainability within this industry. These loans act as lifelines, giving much-needed funds for operations, development, inventory control, and other crucial facets of running a firm.
However, business owners may need help navigating the MSME loan market because there are differences in the requirements for qualifying, interest rates, and repayment schedules. It is critical for small company owners to comprehend the nuances of MSME loans if they want to maximize their financial resources and grow their enterprises.
How are Companies Classified in the MSME Category?
The government has defined criteria for classifying the companies under MSME categories. Listed below is the classification:
| Segment | Classification |
| Micro Enterprise | When the plant, machinery, or equipment investment is not more than INR 1 crore and turnover is not more than INR 5 crore. |
| Small Enterprise | When the plant, machinery, or equipment investment is not more than INR 10 crore and turnover is not more than INR 50 crore. |
| Medium Enterprise | When the plant, machinery, or equipment investment is not more than INR 50 crore and turnover is not more than INR 250 crore. |
What is an MSME Certificate?
You must have an MSME certificate from the government to get an MSME loan from a recognized bank or financial institution. It is a government-issued document certifying the business is a micro, small, or medium enterprise.
To obtain this certificate, you must register your company online using the Udyog Aadhaar site in accordance with the MSMED Act of 2006. After you get the MSME certificate, you will become eligible for loans, schemes, subsidies, and benefits from the government.
MSME Loan Brief
| MSME loan particulars | Details |
| Interest rate | 8.75% and above per annum |
| Loan amount | Up to Rs 2 crores (varies on the bank or institution applied through) |
| Processing fee | Up to 3% of the sanctioned loan |
| Repayment tenure | Between 12 months and 15 years |
| Security or collateral | It is not required as it is an unsecured business loan |
| Foreclosure charges | 0 – 5% of the remaining principal amount |
| Credit facility type | Working capital loan, term loan, overdraft, cash credit, letter of credit, bill discounting, and bill of purchase |
MSME Loan Interest Rates Offered by Top Banks 2024
You can apply for an MSME loan from any authorized bank, NBFC, or financial institution. Here are some interest rates offered by the top Indian banks:
| Bank Name | Interest Rate |
| Central Bank of India | 9.90% and above |
| Union Bank of India | At the bank’s discretion |
| Indian Bank | At the bank’s discretion |
| UCO Bank | 8.85% and above |
| Punjab and Sind Bank | 9.30% and above |
| State Bank of India | At the bank’s discretion |
| Punjab National Bank | At the bank’s discretion |
Government MSME Loan Scheme
Many MSME loan schemes are running in the country. Banks offer some, while the government also provides others. The one offered by the government is listed below.
Pradhan Mantri Mudra Yojana (PMMY)
The Prime Minister of India launched this scheme on 8th April 2015. According to this scheme, non-corporate, non-farm micro, or small enterprises can get a loan of up to INR 10 lakh. These loans are MUDRA (Micro Units Development and Refinance Agency Limited) under PMMY. MUDRA supports the development of MSMEs and is a NBFC.
It supports microfinance NBFC and institutions in lending loans of up to INR 10 lakh to micro units and offers refinancing to banks. Loans are offered under this program by MFIs, NBFCs, small finance institutions, and commercial banks. MSMEs can approach these banks or apply for a loan through the UdyamiMitra portal.
This scheme has three phases – Shishu, Kishor, and Tarun. The borrowers are further classified into these categories, and based on the same, the loan amount and other details are decided. In the Shishu category, one can get a loan up to INR 50,000; in Kishor, the loan amount is between INR 50,000 and INR 5 lakh; and in Tarun, the amount is between INR 5 and 10 lakh.
Some benefits of this scheme are:
- This loan does not require any upfront charges or processing fees and is collateral-free as well.
- As per the lender, the loans are available at a very reasonable interest rate.
- The loan can be used for purchasing equipment, machinery, raw materials, or as a working capital.
- This loan can be applied through private or public sector banks, cooperative or regional rural banks, non-banking financial companies, and microfinance institutions.
- People can track their loans through udyamitra, a web-based portal.
What is the Purpose of Taking an MSME Loan?
An MSME business owner can take an MSME loan for different reasons. Some of them are:
- To launch a new company or grow an already-existing one.
- To purchase machinery, equipment, spare parts, or electrical appliances.
- For the construction of office space or acquiring commercial properties.
- As a working capital for paying salaries and other costs.
- For launching a new product.
- For conducting various business-related activities.
Eligibility Criteria for MSME Loan
Even though this loan is specially designed to help and support the MSME sector, one must fulfill specific eligibility criteria to obtain this loan.
- The business owner must have a healthy credit history and an excellent credit score.
- There should be a minimum income of INR 2 lakh in the business’s financial year.
- The minimum required turnover amount is at least INR 10 lakh annually.
- The business should be financially stable.
- The age of the authorized signatory should be between 21 and 65 years.
- The authorized signatory should be a part of the business for at least one year.
- Eligible for MSME loans are private limited companies, public limited companies, partnership firms, sole proprietorships, and limited liability partnerships.
Features of MSME Loans
Here are some features associated with MSEM loans:
- It offers a flexible time frame to pay off the loan.
- It is approved quickly, and the money is credited to the MSME account online.
- There are no hidden charges in the MSME loan.
- It can aid small companies in streamlining and enhancing their operations.
- Infrastructure growth, the modernization of companies, and the promotion of developing technologies are all facilitated by MSME loans across the nation, especially in Tier-2 and 3 cities and towns.
Can Someone Get an MSME Loan Without Collateral?
An MSME loan without collateral is possible under the following schemes:
- CGTMSE, or the Credit Guarantee Fund Trust for Micro and Small Enterprises, offers loans without any security deposit of up to INR 10 lakh.
- The PMMY gives unsecured business loans of up to INR 10 lakh to professionals, MSMEs, and individuals.
- Under the Stand-Up India Scheme, bank loans for establishing greenfield businesses are available to at least one woman and borrower from a Scheduled Tribe (ST) or Scheduled Caste (SC) per bank.
- Under the MSME Loans in 59 Minutes program, MSMEs can apply online at PSB Loans in 59 Minutes for an unsecured business loan of up to INR 5 crore.
- Loans for MSMEs without collateral are available from non-banking financial companies (NBFCs) with competitive terms and conditions and possibly the fastest turnaround time.
Conclusion
In summary, MSME loans are essential to the expansion and viability of small firms. These financial tools enable entrepreneurs to achieve their goals, grow their businesses, and support economic growth by giving them access to much-needed financing. If taking an MSME loan, one must pay attention to details like payback periods, interest rates, and eligibility requirements. It is advised that small company owners investigate their choices, consult with financial advisors, and use these loans wisely to achieve their goals.
FAQs
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What is an MSME loan?
A customized loan for Micro, Small, and Medium-Sized Enterprises (MSMEs) to support their growth and sustainability.
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How are companies classified under MSME categories?
Based on annual revenue as determined by the government and the investment made in plant, machinery, or equipment.
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What is an MSME certificate, and how is it obtained?
A government-issued document certifying a business as MSME, obtained by registering online through the Udyog Aadhaar site.
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What qualifications are needed to be eligible for MSME loans?
Healthy credit history, minimum income and turnover, financial stability, and meeting age requirements, as listed in the blog post.
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Can MSME loans be obtained without collateral?
Yes, under specific schemes like CGTMSE, PMMY, Stand-Up India, and MSME Loans in 59 Minutes, as well as from NBFCs.
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Why are MSME loans essential?
They provide access to financing, enabling entrepreneurs to achieve goals, grow businesses, and support economic growth.
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What advantages does the PMMY scheme offer?
Loans without collateral and at fair interest rates, available through several lending institutions, have no upfront costs or processing fees.
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Why would someone take out an MSME loan?
To start or expand a business, buy supplies or equipment, build an office, get working capital, introduce new goods, or carry out business operations.
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In 2024, what interest rates will leading banks be giving on loans to SMEs?
The blog post lists interest rates that vary from 8.75% to 8.75% annually.
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What is known as the PMMY (Pradhan Mantri Mudra Yojana) programme?
The government has a policy that allows different lending institutions to lend up to INR 10 lakh to micro or small businesses that are neither farms nor corporations.
