Micro, Small and Medium Enterprise (MSME) loan is the funding support offered by financial institutions to individuals, SMEs, MSMEs and Startup enterprises. MSME loan schemes are majorly used by business owners and enterprises to meet their working capital requirements, to enhance cash flow, for business expansion purposes, buying equipment and machinery and much more. Many lenders also offers MSME loan without any security or collateral.
MSME Loan Interest Rates – 2020
| Bank/NBFC | Interest Rate (p.a.) & Onwards |
| HDFC Bank | 13% |
| SBI (Mudra Loan) | 9.75% |
| Bajaj Finserv | 18% |
| Lendingkart Finance | 18% |
| Axis Bank | 15.5% |
| ICICI Bank | 13% |
| Kotak Mahindra Bank | 16% |
| Punjab National Bank (Mudra Loan) | 10.30% |
| Corporation Bank | 10.30% |
| Bank of India | 10.20% |
| IDFC First | 18% |
| HDB Finance | 18% |
| Fullerton Finance | 17% |
| Flexiloans | 18% |
| RBL Bank | 18% |
Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank, NBFC and RBI. GST and service tax shall be levied extra on the mentioned charges
Features of MSME Loan / SME Loan
- Loan Amount: Min. Rs. 10,000 & Max. up to Rs. 1 crore
- Loan Types: Term loan, Working Capital Loan, Equipment Finance, Mudra Loan, PMEGP, CGTMSE, and many more
- Repayment Tenure: From 12 months to 5 years, can extend in special cases
- Collateral: Not required, only in case of term loan
- Credit Facilities: Bill discounting, Overdraft, Cash Credit, Letter of Credit, Bill of Purchase, Merchant Cash Advance, etc.
Additional Features
- Flexible repayment options
- Easy and Quick documentation
- Simplified balance transfer options
- Minimum loan processing time
- Backed by 100% Credit Guarantee Scheme
The MSME loan’s interest rates offered by various private and public sector banks, NBFCs, Small Finance Banks (SFBs), Regional Rural Banks (RRBs) and Micro Finance Institutions are (MFIs) are based on various factors, such as desired loan amount, repayment tenure, nature and tenure of business, and applicant’s profile, financial history, creditworthiness and repayment capability.
Purpose of MSME Loan
- Meet working capital requirements
- For business expansion
- Manage business cash flow
- To install new equipment or machinery
- For the purchase of raw materials, vehicles, tools, etc
- To stock up inventory
- To pay-off rent, salaries, hire staff, train staff, etc.
MSME Loan Eligibility
- Age Criteria: Min. 18 years and Max. 66 years
- Company Type: Private or Public Limited, Sole Proprietorship, Partnership Firm, Limited Liability Partnership
- Business Turnover: Depends on lender
- Business Vintage: Minimum 2 year and in profit
- Indian Citizen with no criminal record
- Good repayment history and credit score
- Necessary documents shall be CA certified
- Must have last 2 year ITR and last year’s GST Returns
Documents Required for MSME Loan
- Business Plan
- Duly filled Application form for MSME loan apply
- Passport-sized photographs
- KYC Documents of applicant and partners or co-applicants, if any
- Identity Proof: Passport, driving licence, PAN card, Voter’s identity card
- Residence Proof: Passport, lease agreement, trade license, telephone and electricity bills, ration card and sales tax certificate
- Age Proof: Passport, Voter’s identity card, Photo PAN card
- Income Proof of the applicant
- Business address and existence proof
- Rent agreement, Sales Deed, Memorandum of Asociations (MoA), Article of Associations (AoA)
- Copy of Licenses, Certificates and Registrations, if applicable
Also Read: MSME Registration – Benefits, Process, Fees, Eligibility, Documents Required
Financial Documents:
- Last 12 months’ bank statement
- Business registration proof
- Proprietor(s) PAN Card Copy
- Partnership deed copy
- Company PAN card copy
- P&L and balance sheet copy of last 2 years
- Sales tax documents
- Municipal tax documents
New MSME Definition
The distinction between the manufacturing and services enterprises has been removed by making the investment amount and annual turnover similar for enterprises engaged in both the sectors.
| MSME – Merged Criteria: Investment and Annual Turnover | |||
| Sector/Enterprise Type | Micro Enterprise | Small Enterprise | Medium Enterprise |
| Manufacturing & Services Sector, Both | Investment less than Rs. 1 crore Turnover less than Rs. 5 crore | Investment less than Rs. 10 crore Turnover up to Rs. 50 crore | Investment less than Rs. 50 crore Turnover up to Rs. 250 crore |
MSME Loan from Popular Banks and NBFCs
| MSME Loans from Lendingkart Finance – 2020 | |
| Interest Rate | 18% onwards* |
| Max. Loan Amount | Up to 1 crore |
| Min. Loan Amount | Rs. 50,000 |
| Processing Fee | Up to 2% of the loan amount |
| Repayment Tenure | Up to 36 months |
| Loan Sanctioning Time | Within 3 working days |
| Collateral / Security | Not required |
| Pre-payment Charges | Nil |
| MUDRA Loan from SBI – 2020 | |
| Interest Rate | 9.75% onwards* |
| Loan Amount | Max. up to 20 crore, can exceed as per requirements |
| Processing Fee | Upto 2% of the loan amount |
| Business Existence | Min. 5 years in same locality/area |
| Bank Account History | Current account holder for at least 2 years |
| Repayment Period | Up to 120 months |
On 16 June 2020, SBI disbursed approx. Rs 8,700 crore from the Rs 3 lakh crore funding under Emergency Credit Line Guarantee Scheme (ECLGS) for the MSME sector.
| Business Loans from HDFC Bank – 2020 | |
| Rack Interest Rate | 13% onwards* |
| Loan amount | Up to Rs. 75 lakh |
| Processing Fee | Up to 2.50% of the loan amount, Min. of Rs. 2359 & Max. of Rs. 88500 |
| Overdue EMI Interest | 2% per month on EMI / Principal Overdue |
| Pre-payment Charges | Nil, until repayment of 6 EMIs |
| Collateral / Security | Not required |
| Repayment Tenure | Up to 48 months |
| MSME Loans – ICICI Bank – 2020 | |
| Interest Rate | 13% onwards* |
| Loan offered to | Public Limited Companies, Partnership Firms, Sole Proprietorship Firms, Private Limited Companies |
| Loan Amount | Up to 2 crore |
| Cash Credit Feature | Available |
| Collateral / Security | Not required |
| Eligible Business Segment | Micro Small Enterprise, excluding traders |
| MSME Loans from Bajaj Finserv – 2020 | |
| Interest Rate | 18% onwards* |
| Processing Fee | Up to 3% of the loan amount |
| Loan Tenor | Max. up to 48 months |
| Loan Amount | Max. up to Rs. 20 lakh |
| Loan Sanctioning Time | Within 24 hours |
| Collateral / Security | Not required |
Note: All the above mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank/NBFC and RBI. GST and service tax shall be levied extra on the mentioned charges.
*Above mentioned interest rates of all lending institutions are based on the health of your business, revenues and annual turnover.
As per the Micro, Small, and Medium Enterprises (MSME) Development Act 2006, these businesses are classified in two categories, service enterprises and manufacturing enterprises.
MSME Loan Scheme 2020
SME/MSME loans are offered to Micro, Small and Medium Enterprises (MSMEs) by financial institutions that include banks and NBFCs. MSME loans are also offered by government with the help of various schemes which are further discussed. Government Schemes that come under MSME loans include Mudra Loan, CGTMSE, PMEGP, etc.
MUDRA Loan Scheme
Micro Unit Development and Refinance Agency (MUDRA) was introduced to provide support to the small business owners. MUDRA yojana is further classified between three categories named as Shishu, Kishore and Tarun.
Maximum Loan Amount : Upto Rs 10 Lakh
- SHISHU Loan: Loans up to Rs. 50,000 (For start-ups and new businesses)
- KISHOR Loan: Loans from Rs. 50,001 to Rs. 5,00,000 (For buying equipment/machinery, raw materials, business expansion for existing enterprises)
- TARUN Loan: Loans from Rs. 500,001 to Rs. 10,00,000 (For established businesses and enterprises)
Maximum repayment tenure of each loan category is up to 5 years.
Suggested Read: How to apply for MUDRA loan
Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE)
Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) was introduced to establish a strong credit relief system and promote a better credit flow for the MSME sector. Under the CGTMSE scheme, the loan is backed without any external collateral or third party guarantee.
Here, the MSME loan sanctioned by the Member Lending Institution (MLI) is backed by the scheme which provides the guarantee cover for a large portion of the loan amount. Under CGTMSE scheme, both new and existing medium, small, and micro enterprises, including service enterprises are eligible for a maximum credit cap of Rs. 2 crore.
CGTMSE also offers rehabilitation assistance to the units. Any MSME unit that is in a bad condition due to the factors beyond the control of management is supported by the CGTMSE rehabilitation assistance. The maximum credit cap of Rs. 1 crore is offered to the dilapidated MSME units.
Also Read: Small Scale Industries (SSI) – Registration Process, Features, Benefits
MSME Loan Eligibility – CGTMSE
CGTMSE scheme is offered to various institutions which are as follows:
- Scheduled Commercial Banks
- Regional Rural Banks (RRBs)
- National Small Industries Corporation (NSIC)
- North Eastern Development Finance Corporation (NEDFi)
- Small Industries Development Bank of India (SIDBI)
Prime Minister’s Employment Generation Programme (PMEGP)
PMEGP is a credit linked subsidy program which was integrated with two other schemes, namely, Prime Minister’s Rojgar Yojana (PMRY) and the Rural Employment Generation Programme (REGP), to generate employment among the educated youth of the country. Under PMEGP scheme, the beneficiary has to invest close to 5-10% of the project cost while the government grants a subsidy of 15-35% of the project. The participating banks offer the rest of the funds as term loans to the business owners.
Subsidy and funding under PMEGP
| Beneficiary Categories | Beneficiary’s Share (of Total Project) | Subsidy Rate (from Govt.) – Urban | Subsidy Rate (from Govt.) – Rural |
| General | 10% | 15% | 25% |
| Special | 5% | 25% | 35% |
Eligibility Criteria for loan under PMEGP:
- Age Criteria: Min. 18 years & Education Qualification: 8th class passed for individuals
- Must be a part of Self-Help Group (SHG)
- Societies that are registered under Societies Registration Act, 1860
- Production Co-operative Societies
- Charitable Trusts
Also Read: Leading Business Loan Options for Women
MSME Toll Free No: 18001237376
General Enquiries: 011-23063288/011-23063643
FAQs
Ques. Is MSME registration voluntary or compulsory?
Ans. MSME registration is totally voluntary and businesses do it to utilise the benefits offered under it.
Ques. How to apply for MSME loan?
Ans. MSME loan can be applied with the help of Government initiated loan schemes, private and public sector banks, Non-Banking Financial Companies (NBFCs), Regional Rural Banks (RRBs), Small Finance Banks, Micro Finance Institutions, etc. Applicants need to apply for MSME loan either online at the official website of the financial institution or need to visit them personally.
Ques. Who is eligible for MSME loan?
Ans. MSME loans can be availed by self-employed professionals, entrepreneurs, business owners, micro-small and medium enterprises, sole proprietorship, partnership firms, limited liability partnership, etc.
Ques. Is credit score important for MSMEs in getting MSME loan?
Ans. Yes, possessing a good credit score is always an added advantage for MSMEs.
Ques. What is the validity of the Provincial Registration Certificate (PRC)?
Ans. The validation of a Provincial Registration Certificate (PRC) is for 5 years.
Ques. Is there any validity of MSME certificate?
Ans. The validity of MSME certificate is of 5 years.
Ques. What is the benefit of tool-rooms provided by the ministry?
Ans. The MSME Ministry provides high-tech tool-rooms to the MSME enterprises so that their products and services create a niche for themselves in the market. The tool-room initiative from the MSME ministry also provides skilled manpower to the enterprises for increasing their cap.
Ques. What are the measures and relief introduced by ‘Self-reliant India Scheme 2020 by Government of India?
Ans. The key takeaways of New MSME Definition introduced in ‘Atmanirbhar Bharat Abhiyan‘ or Self-reliant India Scheme 2020 by Government of India.
- Collateral Free Loans to MSMEs
- MSME Loans worth of Rs. 3 lakh crore
- Moratorium period offered is 12 months
- Manufacturing and Service MSMEs shall be considered as same entities
- Repayment Tenure of 48 months
- 100% Credit Guarantee
- To benefit approx. 45 lakh units
- For loans up to Rs. 3 lakh, releif of 2% in interest rate
- Rs. 20,000 crore loan option for MSMEs
- Loans of amount Rs. 10,000 offered to pedestrian business owners
- 50 lakh shopkeepers to benefit, running pedestrian shops