MSME Loan in India

What is an MSME Loan?

An MSME loan is a specialized loan or credit facility offered to MSMEs by banks, NBFCs, Government Bodies, financial institutions, etc. These MSME business loans offer financial support for a range of business requirements, including improving cash flow, growing the business, handling working capital, addressing business expenses, and more. The interest rates of these loans vary from lender to lender.

You can check, compare, and apply for various types of business loans on Paisabazaar with interest rates starting from 14.99% p.a.

Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs 

Bank/NBFCs	Interest Rate
Axis Bank	10.75% p.a. onwards
Flexiloans	1% per month onwards
HDB Financial Services Ltd.	8% - 26% p.a.
HDFC Bank	10.75% - 25% p.a.
IDFC First Bank	10.50% p.a. onwards
Indifi	1.50% per month onwards
Kotak Mahindra Bank	16% - 26% p.a.
Lendingkart	12% - 27% p.a.
Mcapital	2% per month onwards
NeoGrowth Finance	15% - 40% p.a.
Tata Capital	12% p.a. onwards
UGRO Capital	9% - 36% p.a.
Bajaj Finserv	10% to 26%

Eligible Entities who can apply for MSME Loans

Individuals, business owners, entrepreneurs, self-employed professionals, and different business entities can apply for MSME loans, including the following:

• Startups recognized under Startup India
• Sole proprietorships, partnership firms, and limited liability partnerships (LLPs)
• Private and public limited companies
• Co-operative societies, trusts, and NGOs (involved solely in business activities)
• Individuals from SC/ST/OBC categories

Eligibility Criteria for MSME Loan

MSME loan eligibility criteria may differ among various lenders, but generally, most banks, non-banking financial companies (NBFCs), and financial institutions adhere to the following standards:

• Nationality: Must be Indian
• Good Credit Profile
• Minimum Credit Score: At least 700 or higher
• Age of Applicant: Between 21 and 65 years
• Business Experience: Typically between 1 to 3 years
• Annual Revenue: As specified by the lender, which can vary from one bank to another
• Type of Business: Engaged in manufacturing, trading, or service sectors (excluding agricultural activities)

Documents Required for MSME Loan

• Duly filled application form with passport-sized photographs
• KYC documents of Applicant / Co-applicants / Guarantors
• Identity & Address Proof:PAN Card (Mandatory), Aadhaar Card, Voter ID, Passport, Driving License
• Business RegistrationProof: Udyam Registration Certificate, Certificate of Incorporation, GST Registration Certificate
• Business Address Proof:Property ownership document, Utility bills (electricity, water, telephone), Rent agreement
• Financial Documents:Latest ITR (1-3 years), Balance Sheet, Profit & Loss Statements, Last 6-12 months’ bank account statements.

How to Apply for an MSME Loan online via Paisabazaar?

Follow the below-mentioned simple steps to apply for MSME loan online:

Step 1: Visit Paisabazaar business loan page on the website or mobile app.

Step 2: Enter your mobile number in the application form.

Step 3: Verify with the received OTP on your mobile.

Step 4: Enter the required personal and business details, such as your name, age, address, business vintage, business type, annual turnover, etc.

Step 5: Compare the displayed loan offers from Banks/NBFCs as per your business requirements.

Step 6: Choose and apply after reviewing the terms, interest rates and related details.

Revised MSME Definition

For better decision-making, it is pertinent to know the recently updated definition of MSMEs by the Union Government. The table below provides you with a snapshot of the updated definition:

Revised investment and turnover limits for various types of enterprise as per the budget 2025-26.

Enterprise Type	Updated Investment Limit	Updated Turnover Limit
Micro Enterprises	From Rs. 1 crore to Rs. 2.5 crore	From Rs. 5 crore to Rs. 10 crore
Small Enterprises	From Rs. 10 crore to Rs. 25 crore	From Rs. 50 crore to Rs. 100 crore
Medium Enterprises	From Rs. 50 crore to Rs. 125 crore	From Rs. 250 crore to Rs. 500 crore

Revised Classification applicable w.e.f 1st April 2025.

Combined Criteria: Investment in Plant & Machinery/Equipment and Annual Turnover.

Note: MSME units are required to be registered on the UDYAM portal to avail the benefits offered.

Source: https://msme.gov.in/know-about-msme

Popular MSME Loan Options

To cater to the diverse and evolving needs of MSMEs, lenders offer a big pool of MSME business loans. Here are a few common types of loan options available for MSMEs.

1. MSME Term Loan – For Long-term Business Needs

For investments aimed at the long term, such as growing a business, investing in capital projects, or acquiring land or properties, etc.

2. MSME Working Capital Loan – For Daily Operations

Utilized for handling everyday business expenses, like covering rent and salaries, paying utilities, purchasing inventory, and funding training expenses.

Working Capital Loans include: 

• Cash Credit: Secured overdraft credit facility with an approved limit; pay interest only for the amount used.
• Letter of Credit: Credit Guarantee for international transactions, secure for both buyers and sellers.
• Bill/Invoice Discounting: Obtain instant cash by converting outstanding invoices; access funds before the customer payment deadline.
• Trade Credit: Short-term funding solution for import/export companies; bridges the gap between the time of shipment and when payment is received.
• Overdraft facility: Temporary credit option to handle immediate costs or short-term cash flow issues.

3. MSME Equipment Financing – For Machinery Purchase

Provides necessary financial aid to acquire machinery and equipment required for scaling businesses, facility expansion, technology upgradation, etc.

Credit Schemes by the Government:

1. Pradhan Mantri Mudra Yojana (PMMY)

Launched in 2015, the PMMY offers MSMEs business loans up to Rs. 20 lakh without requiring collateral. MUDRA presents four different loan categories —

• Shishu- Offers loans up to Rs 50,000
• Kishore- Offers loans over Rs 50,000 and up to Rs. 5 lakh
• Tarun- Offers loans over Rs 5 lakh and up to Rs 10 lakh
• TarunPlus- Offers loans above Rs 10 lakh and up to Rs. 20 lakh. (Exclusively given to individuals who have fully repaid their loans in the Tarun category)

Each option is designed to meet the specific growth phase and funding needs of the business.

2. Prime Minister’s Employment Generation Programme (PMEGP)

It is a credit-linked program, designed to create self-employment opportunities by facilitating the establishment of micro-enterprises in the non-farm sector. Under the scheme, the government offers a subsidy of 15% to 35% to new business ventures based on their business category and location.

3. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

The Credit Guarantee Scheme (CGS) for Micro and Small Enterprises (MSEs) is managed by the Ministry of MSME through the CGTMSE, which was established in 2000 by the Ministry and SIDBI. It offers collateral-free credit guarantees to MSEs for loans provided by Member Lending Institutions (MLIs). As of April 1, 2025, the scheme supports credit up to ₹10 crore for each MSE.

4. Credit Linked Capital Subsidy Scheme (CLCSS)

The program, initiated in 2000, is designed to assist micro and small enterprises (MSEs) in upgrading their technology by providing a 15% capital subsidy upfront. This subsidy can be obtained for investments in approved equipment, with a maximum amount of ₹1 crore.

5. Stand-Up India Scheme

This initiative by the Ministry of Finance supports SC/ST and women entrepreneurs in obtaining bank loans ranging from ₹10 lakh to ₹1 crore to launch a new business in manufacturing, services, trading, or associated agricultural activities. Each bank branch is required to provide loans to at least one SC/ST individual or one woman. In cases of group or company setups, at least 51% of the ownership must be held by an SC/ST or woman entrepreneur.

Note: Numerous MSME loan requests are turned down because of factors such as inadequate credit ratings, limited business experience, or incomplete documentation. Lenders seek evidence of financial stability, ability to repay, and thorough paperwork. To boost your chances, ensure you maintain a good credit score, keep your records current, and select the appropriate loan option for your requirements.

FAQs on MSME Loans

1. What is the current interest rate for MSME loans?

The interest rates for business loans for MSMEs vary from lender to lender. You can check, compare, and apply for various types of business loans on Paisabazaar with interest rates starting from 14.99% p.a.

2. What is MSME loan scheme?

Currently, the government has several initiatives aimed at tackling the issue of financial accessibility for MSMEs. Notable programs include the Pradhan Mantri Mudra Yojana, the Prime Minister’s Employment Generation Programme, and the Credit Guarantee Fund Trust for Micro and Small Enterprises, among others.

3. Who are eligible for MSME loans?

MSME loans can be accessed by a variety of applicants, such as individuals, entrepreneurs, self-employed professionals, and different business entities like startups (under the Startup India initiative), sole proprietorships, partnerships, LLPs, private/public limited companies, cooperatives, trusts, and NGOs that are involved in business activities. Individuals belonging to SC/ST/OBC categories are also qualified to apply.

4. Is it mandatory to provide collateral to avail an MSME loan from Bank?

No, it isn’t always necessary to supply collateral for MSME loans. Numerous banks provide loans without collateral through government programs such as CGTMSE.

5. What are the benefits of availing MSME loans?

MSME loans offer benefits such as easy access to funds, attractive interest rates, reduced paperwork, and fast processing times. These loans help businesses manage their working capital, expand operations, and invest in machinery or infrastructure.