MSME Loan

MSME (Micro, Small and Medium Enterprises), loans are mostly offered to start-ups and small business owners. The MSME loan duration varies from lender to lender and the interest rates offered are majorly based on the business profile.

MSME loans are unsecured loans that are offered by banks and NBFCs only if the applicant meets the certain eligibility criteria MSME loans are defined by Indian Government and RBI as the loans for business enterprises that need support in terms of finance, infrastructure and other areas.

MSME Loans from Popular Banks and NBFCs

Apart from the government-backed schemes, there are a number of private sector banks as well that offer MSME loan at reasonable interest rates. Below mentioned are some key banks and NBFCs that offer MSME loans at attractive interest rates with added benefits:

Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned charges

*Based on the health of your business, revenues and annual turnover

Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned charges

*Based on the health of your business, revenues and annual turnover

Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned charges

*Based on the health of your business, revenues and annual turnover

Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned charges

*Based on the health of your business, revenues and annual turnover

Note: The mentioned interest rates, fees and charges are subject to change and depend on the sole discretion of the bank and RBI. GST and service tax shall be levied extra on the mentioned charges

*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.

• Service Enterprises: The enterprises engaged in providing services come under this category

• Manufacturing Enterprises: Enterprises that are engaged in manufacturing or production of goods come under this category

MSME Loan Schemes

MSME loans are offered to micro, small and medium enterprises 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. These schemes ensure that the new and existing entrepreneurs in the country get the necessary financial support and funding for their businesses.

Mudra Loan (Micro Unit Development and Refinance Agency)

MUDRA (Micro Unit Development and Refinance Agency) was introduced to provide support to the small business owners. MUDRA yojana is further classified between three categories named as Shishu, Kishore and Tarun.

In the Shishu category, an MSME loan is provided up to Rs. 50,000 to a startup company. In the Kishore category, a loan of up to Rs. 5 lakh is provided to the companies that have been running for a while and want to get more established. In the Tarun category, the MSME loan is provided up to Rs. 10 lakh to companies that are established and are looking for expansion. The maximum repayment tenure is of 36 months for all Mudra loan categories

CGTMSE (Credit Guarantee Funds Trust for Micro and Small Enterprises)

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

Eligibility of CGTMSE Scheme

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)

CGTMSE scheme aids all new and existing medium, small, and micro enterprise borrowers who fulfill the conditions mentioned below:

• The trust guarantees up to 75% of the defaulted principal amount for all categories and up to 85% of the defaulted principal amount for selected category of borrowers. The maximum guarantee cap is kept at Rs. 62.50 lakh / Rs. 65 lakh for the credit facilities up to Rs. 50 lakh.

• The extended guarantee cover for the micro enterprises with credit acquired up to Rs. 4.25 lakh is 85%. Also, the extent of guarantee cover remains 50% of the sanctioned amount of the credit facility for credit above Rs. 50 lakh with a maximum guarantee cover of Rs. 1.5 crore.

• Associated charges such as penal interest, commitment charge, and service charge including any other levy / expenses are not covered by the scheme.

• Small and micro enterprises owned and / or operated by women are also eligible for a guarantee cover of 80% and all the credit/loans in the North East Region (NER) for credit facilities are eligible for a guarantee of Rs. 40 lakh. Other aspects such as retail trade, educational institutions, agriculture, training institutions, and self-help groups (SHGs) are not eligible for guarantee cover under the scheme.

PMEGP (Prime Minister’s Employment Generation Programme)

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

To avail PMEGP loan, individuals and organizations should meets certain criteria which are listed below:

• Age Criteria: Min. 18 years & Education Qualification: 8^th class passed for individuals
• Self-help group
• Societies that are registered under Societies Registration Act, 1860
• Production Co-operative Societies
• Charitable Trusts

Sub-Schemes offered under Mudra Loan Yojana: Mudra loan or Mudra Yojana comes with sub-schemes designed for specific business needs and requirements. The section includes sub-schemes such as:

• Credit for Micro Enterprises: This sub-scheme focuses on maximizing the involvement of micro enterprises in the economical development. The additional benefits cover a large number of beneficiaries running micro enterprises. The major segments of the population that are involved in land transport, food production, textile, and community services may take advantage of the scheme and set up their own small business unit.
• Mahila Uddyami Scheme: This scheme is designed specifically for women entrepreneurs. It has an objective of encouraging women, groups of women, joint liability groups, and self-help groups of women to set up micro business entities. Under this scheme, special interest concessions are also granted.
• Refinance Scheme for Banks: Mudra Yojana also refinances MSME loan amounts of up to Rs. 10 lakh extended by the banks to the borrowers. However, only manufacturing and service sector MSME unit owners can obtain the benefits of this refinancing scheme.
• Micro-Credit Scheme: Micro-credit schemes focus on Micro Finance Institutions (MFIs) and provide them with the financial support to make their lending operations available for individuals, group of individuals, or micro business entities.

Also Read: Leading Business Loan Options for Women 

• Mudra Card: This is an extraordinary product that makes the funds from the MSME loan easily accessible to the cardholder and also offers significant flexibility. Mudra Card can be used as a credit card for the assigned overdraft limit and it can also be used as a debit card for ATM withdrawals.
• Credit Guarantee Fund: The credit guarantee fund is created to reduce the risk for lending institutions. The fund provides loans worth more than Rs. 1 lakh crore to manage the risk faced by lending institutions.
• Equipment Finance Scheme: This scheme is designed to help micro enterprises expand their business. Technically advanced equipment can be purchased through finance with the help of this scheme. It can help organizations in increasing their production and expand their horizons of profitability and sustainability.

How to Calculate MSME Loans EMI?

Simple formula that is used to calculate MSME Loans is as follows:

E = P x r x (1+r) n /(1+r) n-1

Here,

‘E’ is the EMI

‘P’ represents the loan amount

‘r’ stands for the interest rate offered on a monthly basis

‘n’ is the duration of the loan

Lenders offer MSME loan calculator formula to its customer that helps them in calculating the EMI amount through a web interface. The formula basically simplifies or breakdown the interest and principal loan amount as per desired loan tenure.

Documents Required for MSME Loan:

• Duly filled Application form
• Identity Proof: Passport, driving licence, PAN card number, 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

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
• Pre-clos Proprietor(s) Aadhar Card Copy
• Partnership deed copy
• Company PAN card copy
• P & L and balance sheet copy of last 2 years
• Sales tax documents
• Municipal tax document

Frequently Asked Questions (FAQs)

Ques. What is the support available for technology upgrades?

Ans. The Government of India and MSME ministry runs a Credit Linked Capital Subsidy (CLCSS) scheme that supports the MSME enterprises in the country for technology upgrades. The schemes provide 15% capital subsidy to the eligible MSME enterprises to improve and upgrade the technology as per the industry standards. The maximum subsidy availed by an enterprise cannot go beyond the limit of Rs. 15 lakh. To avail these services, individuals can approach the nearest nodal agency / financial institution.

Ques. Is there any provision for cluster development under the government schemes?

Ans. Under the Micro Small Enterprises – Cluster Development Programme (MSE-CDP), the support is provided for diagnostic study. The government is also trying to manage soft interventions such as creating general awareness, counselling, motivation, exposure visits, trust building, market development, and participation in seminars, workshops, and training programmes on technology upgrades.

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.