What small business owners should know while applying for MSME Loans? Here are a few simple tips & tricks to get the MSME loans for your business.
Businesses require constant cash flow to manage their day to day activities. Most businesses are not self-sufficient and that is why the need for loans is very common in this sector. Without adequate credit, MSMEs are forced to take loans from money lenders at high interest rates. This leads to high levels of debt and eventually to their inability to pay their employees, pay back taxes, or to even pay their suppliers, resulting in their bankruptcy.
In this regard, MSME’s require financial assistance in the form of MSME Loans. MSME Loans are a great financial aid to the lakhs of MSME enterprises in the country.
Why Should MSME Loans Be Your 1st Choice?
MSME loans are widely available and offer several perks such as no collateral, government subsidies, low interest rates, and loan sums of up to Rs.50 lakhs. The government has also provided tax breaks on MSME Loans, making them the most popular lending choice for small business owners.
MSMEs can apply for many types of loans; there are term loans, working capital loans and MSME loans to meet capital needs. MSME loans are the most popular among them owing to its low interest rates and other benefits.
Different Types Of MSME Loans
1. Pradhan Mantri Mudra Yojana (PMMY)
MUDRA – Micro Units Development & Refinance Agency Ltd
- Bank and NBFC refinancing support to boost the amount of money available for lending
- Loans to manufacturing, trading, and service companies, as well as tractor finance, agriculture, and allied enterprises, and two-wheeler loans
- MUDRA improves MSME enterprises through financial literacy and other social support services, in addition to financial assistance
- MUDRA’s three lending schemes are Sishu loans up to Rs. 50000, Kishore loans up to Rs. 5,00,000, and Tarun loans up to Rs. 10 lakhs
2. Credit Guarantee Fund Government Business Loan Scheme(CGTMSE)
- The Credit Guarantee Fund Trust for Micro and Small Enterprises, or CGTMSE, seeks to deliver credit guarantees on collateral-free term loans to MSME units that meet certain criteria. It generally covers funds received by MSME units from qualifying partner lenders and pays a portion of the term loan to the lending institution in the event of a default or the loan becoming a Non-Performing Asset (NPA).
- The guarantee insurance under the scheme is provided on the basis of the borrower’s category or region. The specifics of the guarantee coverage are listed below.
| Particulars | Maximum credit guarantee provided |
| Micro Enterprises | – Up to Rs. 5 lakhs – 85% of the default amount (maximum Rs. 4.25 lakhs) – Above Rs. 5 lakhs up to Rs. 50 lakhs – 75% of the default amount (maximum Rs. 37.5 lakhs) Above Rs. 5 lakhs – Up to Rs. 2 crores – 75% of the default amount (maximum Rs. 1.5 crores) |
| Women Entrepreneurs/ MSME from North East Region and Sikkim | 80% of the default amount (maximum Rs. 40 lakhs) |
| MSE Retail Trade | 50% of default amount (maximum Rs. 50 lakhs) |
| All other eligible borrowers | 75% of the default amount (maximum Rs. 1.5 crores) |
3. Business Loans from Banks and NBFCs
Entrepreneurs seeking funding to start their firms might apply for business loans. These loans are ideal for Indian small enterprises. There are both secured and unsecured business loans accessible.
- Term loans, working capital loans, vehicle loans, and equipment loans are all examples of business loans
- Based on their company’s financial position, business owners can obtain up to Rs. 50 crores in business loans
- The interest rate on a company loan ranges from 8.5% to 22%
- This loan can be repaid over a period of up to 15 years
4. Instant Online Loans for Businesses
With the advent of online financing, various lending platforms that provide Instant Business Loans for MSMEs have emerged. These loans are typically completed online and disbursed within 24 to 48 hours.
- Loan amounts of up to Rs.50 lakhs are available.
- Interest rates begin at 9% and can reach a maximum of 23%.
- These are short-term loans with repayment terms of up to 5 years.
- These are unsecured loans that are entirely processed online.
5. PSB Loans in 59 Minutes
The PSB Loan In 59 Minutes initiative offers advantageous terms such as loan approval within 1 hour, a thorough online loan approval process, and an alluring interest rate starting at 8%. Because they are tied to the Micro and Small Enterprises Loan Guarantee Fund Trust (CGTMSE) program, you do not need collateral protection.
- Guarantees a loan application and approval time of 59 minutes or less than one hour.
- Complete online process that ensures complete transparency
- Loan sums ranging from Rs.10 lakh to Rs.5 crore are available.
- Interest rates begin at 8.50 percent.
- Collateral-free loans are available because this program is insured by the Micro and Small Enterprises Loan Guarantee Fund Trust (CGTMSE).
- Loans are disbursed within one week of loan approval.
Where And How To Apply For MSME Loan Schemes?
Most of the government backed MSME loan schemes can be availed at your nearby bank or NBFC. You can even apply for these loans directly only through the MUDRA portal.
What Are The Eligibility Criteria To Apply For MSME Loans?
There are various types of MSME loans. You can obtain term loans for any purpose, as well as machinery loans to purchase specific equipment. Working capital loans or lines of credit are available to meet your company’s day-to-day demands. As a result, before obtaining the correct type of MSME Loan for his organization, the business owner should make a list of his requirements.
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Banks and NBFCs also have different qualifying conditions for disbursing MSME loans. The following are the most typical MSME loan eligibility criteria:
| Business Age | Minimum 2 years of existence, with 1 year of profit making |
| Eligible Entities | Individuals, SMEs, MSMEs, business owners, women entrepreneurs, self-employed professionals |
| Business Type | MSMEs registered as Proprietorship, Partnership or Pvt. Ltd. / LLP / One Person Company |
| Annual Turnover | Micro Enterprises – Rs.5 crores Small Enterprises – Rs.5 – 75 crores Medium Enterprises – Rs.75crores – 250 crores |
| Collateral or Security | Based on the bank’s discretion |
Obtaining an MSME loan is simple and painless. Most lenders distribute loan funds quickly—as long as the required documentation is in order and you have demonstrated your creditworthiness. There is also little documentation. The processing time is quite short, with some lenders offering approval in as little as 24 hours. Most lenders offer online account access, which allows you to easily access your loan account details. You can also easily track and pay your EMI installments. MSME loans provide competitive interest rates, ensuring that the loan is repaid with the least amount of money possible. This translates into savings as compared to other conservative types of financial products. Furthermore, the majority of MSME loans do not demand collateral. These loans are typically used by small firms for short-term needs. Because there is no long-term commitment, this gives the borrower some flexibility. With a short-term commitment, you can manage cash flow more effectively and utilize available resources accordingly.