What is MSME Loan
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 SME/MSME loan without collateral or any security.
Compare Best MSME Loan Interest Rates Dec 2020
| Lenders | 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 Bank | 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
Table of Contents :
MSME Loans Fees & Interest Rates
| Interest Rate | Depends on business requirements |
| Loan Amount | No Minimum Limit to borrow and Maximum is up to Rs. 1 crore, can exceed as per business requirements |
| Repayment Tenure | From 12 months – 5 years |
| Collateral | Not required for Unsecured Business Loans |
| Processing Fee | From Nil – 4% of the loan amount |
| Foreclosure Charges | From Nil – 5% of the outstanding loan amount |
| Part-payment Charges | From Nil – 4% |
| Loan Cancellation Charges | Varies from bank to bank |
MSME Loan/SME 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
How to Calculate MSME / SME Loans EMI?
MSME Loan EMI can be calculated from the below-mentioned formula:
EMI = P × r × (1 + r) n/ ((1 + r) n – 1)
Above:
P: Loan amount, r: interest rate, n: tenure in number of months
What are the Benefits of MSME/SME loans?
Below mentioned are the benefits of MSME loan:
- Lower Interest Rates
- Collateral-free Loans
- Minimal Documentation
- Short-term loans with flexible repayment options
- Nil or Lower Processing Fees
- Quick approval and disbursal
Features of MSME Loans / SME Loans
- 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 of MSME loan for business
- Flexible repayment options
- Easy and Quick documentation
- Simplified balance transfer options
- Minimum loan processing time
- Backed by 100% Credit Guarantee Scheme
The MSME/SME 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. Below mentioned is the MSME loan procedure:
5 Steps to apply for MSME/SME Loans
- Visit Paisabazaar.com to check and compare from top SME/MSME loan deals
- Pick the loan deal that suits your business requirements
- Fill up the basic details and submit to get a call from Paisabazaar’s expert
- Submit all the required documents for bank’s representative to proceed with loan formalities
- After loan approval from bank, get money disbursed in your bank account
Collateral Security on MSME Loans
Collateral or Security is not required by banks from borrowers, if they are availing unsecured business loans or MSME schemes. However, there are some specific business loan types where collateral is required to be submitted by borrowers, such as Equipment Finance, Loan for Machinery, Fleet Finance, Letter of Credit, Working Capital Loan, etc.
Purpose of MSME Loans
- Meet working capital requirements
- For new 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.
Documents Required for MSME Loans
- 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 Associations (MoA), Article of Associations (AoA)
- Copy of Licenses, Certificates and Registrations, if applicable
Also Read: MSME Registration – All You Need To Know
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
MSME Scheme – New 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/SME Loan from Popular Banks and NBFCs
| MSME/SME 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.
| SME 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 Loans – 2020
SME/MSME loans are offered to Micro, Small and Medium Enterprises (MSMEs) by financial institutions that include banks and NBFCs. MSME schemes 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. MSME loan for startup business is also offered by financial institutions.
MUDRA Schemes
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. MSME loan for new business can be availed under Mudra scheme.
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 MSME business loan is backed without any external collateral or third party guarantee.
Here, the MSME loans are sanctioned by the Member Lending Institution (MLI) is backed by the scheme which provides the guarantee cover for a large portion of the MSME business 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 on MSME Loans
Ques. Is MSME registration voluntary or compulsory?
Ans. MSME registration is totally voluntary and businesses do it to utilise the benefits offered under it.
Q2. How much loan is offered under MSME schemes?
Ans. The loan amount for an MSME ranged between Rs. 1 lakh to Rs. 1 crore, may exceed depending upon business requirements. Above Rs. 1 crore MSMEs can avail secured business loan wherein they need to submit collateral or security with the bank or lender.
Q. How can I get collateral free MSME loans?
Ans. If you want to get collateral free MSME loan, then you will have to apply for unsecured business loan that is maximum up to Rs. 1 crore.
Q. Is there any turnover limit for MSME Schemes?
Ans. The minimum annual turnover limit is defined by the lender and it shall very from applicant to applicant.
Q. What is the full form of MSME/SME Loan?
Ans. MSME stands for Micro, Small and Medium Enterprise loan is termed as MSME whereas SME means for Small and Medium Enterprises.
Q. What is MSME registration fee?
Ans. The MSME registration is free of cost and obtaining MSME certificate is also absolutely free.
Ques. Who is eligible for MSME/SME 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.
Q. How can I avail MSME loan in 59 minutes?
Ans. To avail MSME loan in 59 minutes, you can visit the official website of psbloansin59minutes.com, an initiative by Government of India that approves business loans in just 59 minutes after form submission.
Q. What are the processing fees and pre-closure charges for MSME loans?
Ans. The processing fee can be Nil for some banks and may range from 1%-4% of the loan amount. This also applies with the pre-closure charges for MSME loans.
Q. How can I get a loan for restaurant business in India?
Ans. To check and compare from all the business loan deals to start a restaurant business, you can simply visit paisabazaar.com to pick from available loan deals. By filling simple details and submitting it online, respective bank’s representative shall contact you to discuss loan details and to further proceed with loan formalities.
Q. Is GST mandatory for MSME Loans?
Ans. Yes, last years’ GST return is necessary for existing MSME and salaried professionals who want to start their new business.
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. From where I can get MSME loan application?
Ans. You can download MSME loan application by visiting the bank branch or the official website of Ministry of MSME.
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
