MSME Loan for New and Existing Businesses

MSME Loan for New and Existing Business or Enterprise is a type of credit facility in form of a term loan (short-term/intermediate-term/long-term), working capital loan, overdraft, cash credit, letter of credit, bill discounting, and other funding products.

Micro, Small, and Medium Enterprise (MSME) loans are offered by numerous financial institutions to startups, self-employed professionals, MSMEs, business owners, sole proprietorships, private and public limited companies, partnership firms, limited liability partnerships, and other business entities engaged in the Services, Manufacturing, and Trading sectors.

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Further, let’s discuss business loan interest rates offered by leading Banks/NBFCs, along with MSME loan features, eligibility criteria, fees & charges, and much more.

Comparison of Business Loan Interest Rates offered by Top Banks/NBFCs – October 2022

Note: Business loan interest rates are updated as on October 2022.

Table of Contents :

MSME Loan – Features, Types, Fees & Charges

MSME loans are primarily used for business expansion purposes, starting a new business, meeting working capital requirements, enhancing cash flow, purchasing raw materials, goods, or stock, buying or upgrading equipment/machinery, paying off rent/salary, hiring, and training staff, etc.

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Eligibility Criteria

• Credit score: 750 or above
• Minimum business vintage of 1 year
• Business Turnover: Min. Rs. 12 lakh for existing enterprises, varies from bank to bank
• Good repayment history with financial stability
• No previous loan default with any financial institution

Eligible Entities that can apply for MSME loans:

• Individuals, MSMEs, business owners, women entrepreneurs, self-employed professionals, and people falling under SC/ST/OBC category
• Private or Public Limited Companies, Sole Proprietorships, Partnership Firms, and Limited Liability Partnerships engaged only in the trading, services, and manufacturing sectors

Documents Required

• Duly filled Application form with passport-sized photographs
• KYC documents of applicant and co-applicants that include Passport, Aadhar card, Voter’s ID card, Driving License, PAN Card, and Utility Bills (Telephone, Electricity Bills)
• Business Address and Vintage Proofs
• Last 6 months’ bank statement along with bank details
• Business Establishment Certificate or Incorporation Letter
• Proof of belonging to SC/ST or OBC category, if applicable
• Any other document required by the bank/NBFC

Also Read: MSME Registration – All You Need To Know

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MSME Loan Schemes initiated by the Govt. of India

MSME loan schemes initiated under the Ministry of MSME (MoMSME) are offered to Micro, Small, and Medium Enterprises (MSMEs) by various banks and NBFCs. Popular MSME schemes offered by financial institutions and initiated by the Indian Government are below mentioned:

• CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
• CLCSS: Credit Linked Capital Subsidy Scheme
• Credit Guarantee Scheme
• MUDRA Yojana under PMMY
• National Small Industries Corporation (NSIC) Subsidy
• PMEGP: The Prime Minister Employment Generation Programme
• PMRY: Prime Minister’s Rozgar Yojana
• PSB Loans in 59 minutes
• Standup India
• Startup India

Get MSME Loan at low-interest rates, if you have a Good Credit Score

Know more about Credit Score and its Importance in Availing MSME Loan

Credit Score is an auto-generated number from credit bureaus that summarize your loan or credit card repayment history. It depicts the possibility of you getting a loan or credit card from various financial institutions. Credit score that is more than 750 is usually considered good, but still, you can apply for a loan from our partners, if even your credit score is 650 or above.

Maintaining a good credit score always helps in loan approval and makes sure that your business requirements are met in time, irrespective of the size, type, volume, tenure, or nature of your business or enterprise. Individuals, Self-employed professionals, Startups, Small and Medium Enterprises (SMEs), and Large enterprises should maintain a good credit score of 750 or above to get loans at low-interest rates with added benefits.

People who are New-to-Credit, retailers, traders, manufacturers, or micro-enterprises who do not use any funding like loans or credit cards are recommended to start using at least any source to build up their credit score. Therefore, build, maintain and manage a high credit score to avail more benefits.

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Does MSME Loan comes with or without Collateral/Security

MSME loans are both secured and unsecured business loans, however, most lenders offer unsecured business loans that are termed collateral-free loans. In the case of collateral-free loans, borrowers are not required to submit any collateral/security with the Bank/NBFC or any financial institution.

MSME loans come with various features and benefits as mentioned below:

• Collateral-free MSME/Business loans of amounts up to Rs. 1 crore (Unsecured business loan)
• Collateral-free business loans are usually short-term loans that can be repaid within a tenure of 12 months and the maximum can exceed up to 5 years
• Financial institutions, such as Private and Public Sector Banks, Non-Banking Financial Companies (NBFCs), Regional Rural Banks (RRBs), Small Finance Banks (SFBs), and Micro Finance Institutions (MFIs) offer MSME loans at competitive interest rates
• Loan amount offered shall depend on the applicant’s profile & credit score, creditworthiness, repayment capability, and financial stability

Factors affecting MSME Loan Interest Rates

The MSME/SME loan interest rates offered by various private and public sector banks, Non-banking Financial Companies (NBFCs), Small Finance Banks (SFBs), Regional Rural Banks (RRBs), and Micro Finance Institutions (MFIs) are based on various factors, such as loan amount, repayment tenure, business annual turnover, company’s credit rating, nature/ tenure/ volume of business, and applicant’s income, credit score, financial history, creditworthiness, and repayment capability.

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New MSME Categorisation

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 sectors.

Factsheet of MSME Registration (2021-22)

Source: Udyam Registration’s Official website. Numerics updated as on October 2022.

Estimated numbers of MSMEs in India (2021-2022)

Source: https://msme.gov.in/ (Last updated as on October 2022)

Distribution of Enterprises (Rural and Urban area-wise)

Source: https://msme.gov.in/ (Numbers are in lakh) (Last updated as on October 2022)

MSME Toll-Free No: 1800-123-7376
General Enquiries: 011-23063288 / 011-23063643

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FAQs

Q. Is credit score important for MSMEs in getting MSME loans?
Ans. Yes, having a good credit score that is above 750 is always an added advantage when applying for MSME loans.

Q. Is MSME registration voluntary or compulsory?
Ans. MSME registration is totally voluntary and businesses do it to utilise the benefits offered under it.

Q. How can I get collateral-free MSME loans?

Ans. If you want to get collateral-free loans for MSMEs or startups, then you will have to apply for an unsecured business loan.

Q. Is there any turnover limit for MSME Schemes?

Ans. The minimum annual turnover limit is defined by the lender and it shall vary from applicant to applicant.

Q. Is a machinery loan offered to MSMEs?

Ans. Yes, a machinery loan is a type of business loan offered by various banks and NBFCs to MSMEs and entrepreneurs. This loan category comes under equipment finance.

Q. What is the MSME registration fee?

Ans. The MSME registration is free of cost and obtaining an MSME certificate is also absolutely free.

Q. Who is eligible for an MSME loan?

Ans. MSME loans can be availed by self-employed professionals, entrepreneurs, business owners, Micro-Small and Medium Enterprises (MSMEs), sole proprietorships, private and public limited companies, partnership firms, Limited Liability Partnerships (LLPs), etc.

Q. How can I avail MSME loan in 59 minutes?

Ans. To apply for an MSME loan online in 59 minutes, you can visit psbloansin59minutes.com, an initiative by the Government of India that approves business loans in just 59 minutes after application form submission.

Q. Is GST mandatory for MSME Loans?

Ans. Yes, last year’s GST return is necessary for existing MSME and salaried professionals who want to start their new business(s).

Q. What is the validity of the Provincial Registration Certificate (PRC)?
Ans. The validation of a Provincial Registration Certificate (PRC) is for 5 years.

Q. Is there any validity of the MSME certificate?
Ans. The validity of the MSME certificate is of 5 years.

News

Loan Guarantee Scheme of Rs. 50,000 crore for Healthcare Sector

1 Sept 2021: Finance Minister Nirmala Sitharaman announced Govt. Guaranteed – Loan Scheme for Covid Affected Sectors (LGSCAS) of Rs. 50,000 crore exclusively for the healthcare industry. Under this scheme, banks can offer loans to the medical sector and for building healthcare infrastructure in smaller towns and non-metropolitan cities. The maximum interest rate offered under this scheme is 7.95%. This loan scheme came into effect on May 7, 2021, and is valid up to March 2022. LGSCAS offers funding coverage for brownfield expansion and greenfield projects related to the healthcare and medical infrastructure.

Bank of Baroda in partnership with U GRO Capital to disburse Rs. 1000 crore loan to MSMEs

26^th July 2021: Under this co-lending program, Micro Small and Medium Enterprises (MSMEs) can now avail business loans worth Rs. 1000 crore that shall be disbursed by Bank of Baroda in partnership with U GRO Capital. As per RBI’s revised co-lending regulation, 80% of the loan amount shall be disbursed by BOB and the rest by the NBFC partner. The loan can be availed by MSMEs operating at U GRO’s over 200 channels around 9 locations in cities that include Delhi, Mumbai, Kolkata, Chennai, Hyderabad, Jaipur, Ahmedabad, Pune, and Bengaluru. Below are the loan details offered for MSMEs:

Features of MSME Loan under a co-lending program

FM announces additional Emergency Credit Line Guarantee Scheme (ECLGS) for Covid-19 affected sectors

28 June 2021: Finance Minister Nirmala Sitharaman announces additional Rs 1.5 lakh crore funding under the Emergency Credit Line Guarantee Scheme (ECLGS) for COVID-affected sectors. The sector-wise details shall be decided as per the requirements or sector needs. Now the ECLGS scheme is expanded up to Rs. 4.5 lakh crore. Approximately, 25 lakh people can avail the loan via Micro Finance Institutions (MFIs). This fiscal stimulus is launched as a part of the Atma Nirbhar Bharat Package in May 2020. The Govt. of India has recently extended this emergency credit scheme till March 31, 2023.

SBI Launches New Business Loan Scheme to support Healthcare Sector

June 25, 2021: SBI introduces the Aarogyam Healthcare Business Loan scheme to offer financial support to the healthcare sector to fight COVID-19. Under this special loan category, healthcare entities can avail loans up to Rs. 100 crore, as per their geographical location. The repayment tenure of the loan is up to 10 years. Collateral-free loans up to Rs. 2 crores, as covered under the guarantee of Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE). The nature of the loan is both a Term Loan for expansion purposes, as well as a Working Capital Loan in form of a letter of credit and cash credit. For Tier, I & Urban centers maximum loan amount offered is up to Rs 20 crore and Rs. 10 crores for Tier II to Tier VI centers.

Loans offered under Mudra Scheme exceed Rs. 9 lakh crore

June 24, 2021: At G20 Labour and Employment Ministers’ Meeting, Labour Minister Santosh Kumar Gangwar announced that more than Rs 9 lakh crore has already been disbursed, as collateral-free loans under the Mudra scheme. As per the labour minister, approximately 70% of the account holders are women under Pradhan Mantri Mudra Yojana (PMMY). Mudra Yojana was primarily introduced to offer financial support to budding entrepreneurs across the nation.

SME Loan Relief Measures during COVID-19

30th May 2021: SBI and IBA announce SME loan relief measures for individuals and MSMEs to lower the COVID impact. The Government of India declares an extension of its Rs. 3 lakh crore ECLGS – Emergency Credit Line Guarantee Scheme.

• Public Sector Banks to offer restructuring loans to individuals, small businesses, and MSMEs up to Rs 25 crore
• For loans up to Rs. 2 crores, Govt. to provide 100% guarantee cover to hospitals, nursing homes, etc. for setting up of on-site oxygen generation plants
• Interest Rate offered is 7.50%
• The validity of ECLGS has been extended by the Govt. till March 31 2022
• The disbursement under the scheme has been permitted up to December 31, 2021

RBI announces Rs. 50,000 crore funding support to fight COVID

5 May 2021: RBI Governor, Shaktikanta Das introduced new measures to tackle the second wave of COVID-19 in India. The Governor announced on-tap liquidity funding of Rs. 50,000 crore, as a credit facility to be offered to banks, NBFCs, and other lending institutions. This funding support is in the form of incentivized loan schemes that shall be offered to the enterprises engaged in the healthcare, manufacturing, and logistics sectors. Vaccine manufacturers, hospitals, medical equipment makers, as well as patients shall be offered loan schemes by the private and public sector banks, NBFCs, Micro Finance Institutions (MFIs), and Small Finance Banks (SFBs).