MSME Loan 2024: How to Apply, Schemes, Interest Rates, Eligibility

MSME Loan:- Micro, Small, and Medium Enterprise (MSME) loans are a kind of loan that you can apply for if you are an entrepreneur or business owner. This kind of loan gives you operating capital that you can utilize for several things, such as restocking your inventory, investing in new machinery, paying employee salaries, or supporting business growth. Customers in India can apply for MSME loans from several lenders. Additionally, interest rates vary between banks.  

What is MSME Loan 2024

What is MSME Loan 2024

Micro, Small, and Medium-Sized Enterprise (MSME) loans are available to entrepreneurs and business owners. A lending facility that banks and non-banking financial companies (NBFCs) offer to small and medium-sized enterprises is known as an MSME loan. They provide MSME loans at competitive interest rates with little to no collateral.    

An MSME loan for a new company is perfect for managing the MSME and enhancing its financial standing by assisting with the purchase of cutting-edge machinery, equipment, stock, staff salaries, etc. MSMEs’ expansion and growth may also benefit from it.

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Micro, Small, and Medium Enterprise Loan Details in Highlights

Interest rate8.75% p.a. onwards
Loan amountNo minimum limit and a maximum of up to Rs.2 crores, which can exceed as per business requirements
Processing feesUp to 3% of the sanctioned loan amount
Repayment tenureFrom 12 months to 15 years
Collateral/securityNot required for unsecured business loans
Foreclosure chargesNil to 5% of the outstanding principal amount
Credit facility typeTerm loan (short, intermediate and long-term), working capital loan, cash credit, overdraft, bill discounting, letter of credit and bill of purchase

Features of MSME Loans

The following are the characteristics of an MSME loan.

  • With an MSME loan, you can simply repay the loan amount over a variety of flexible periods.
  • Within a few days, the MSME loan will be approved, and the funds will be credited to the MSME account online.
  • Delays in business operations are avoided by the prompt payout and easy availability of MSME loans.
  • MSME loans come with very little extra expenses, such as processing fees. There are no other unstated costs.
  • The interest rate for MSME loans is incredibly cheap, starting at 8.75% p.a.
  • Small enterprises can enhance their operations with its assistance.
  • Collateral pledges are not necessary for an MSME loan.
  • Infrastructure growth, the modernization of businesses, and the promotion of developing technologies are all facilitated by MSME loans across the nation, especially in Tier-2 and Tier-3 cities and towns.

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MSME Loan Eligibility Criteria

The following is the Eligibility Criteria of an MSME loan.

  • A credit score of 750 or higher is required.
  • A business must generate at least Rs. 2 lakhs in revenue annually, with a minimum turnover of around Rs. 10 lakhs.
  • Businesses ought to be financially stable and have a solid track record of repayment.
  • Organizations shouldn’t have a history of financial institution loan defaults.
  • The applicant’s or a business’s authorized signatory’s minimum age to accept the loan is 21 years old, and their maximum age is 65 years old.
  • The candidate or designated signatory must possess a minimum of five years of business experience and have worked for the company or organization for at least three years.
  • MSME loans are available to individuals, business owners, and MSMEs who have formed the following kinds of businesses in the manufacturing, trading, and services sectors:
  • Private limited companies
  • Public limited companies
  • Sole proprietorships
  • Partnership firms
  • Limited Liability Partnerships (LLPs)

MSME Loan Interest Rate

The MSME loan interest rates of different banks and NBFCs are provided below.

MSME Loan Interest Rates of Top Banks

Bank NameInterest Rate
Indian Bank8.75% p.a. onwards
Central Bank of IndiaAt the discretion of the bank
Punjab and Sind Bank9.05% p.a. onwards
Punjab National Bank9.60% p.a. onwards
State Bank of India8.25% p.a. onwards
Canara BankAt the discretion of the bank
UCO Bank8.70% p.a. onwards
Union Bank of IndiaAt the discretion of the bank

Below are details of some of the popular Indian banks offering MSME loans:

SBI SME Smart Score Loan
Interest rate8.25% p.a. onwards
Processing fee0.40% of the loan amount
Loan amountUp to Rs.50 lakh
Loan repayment tenureUp to 7 years
HDFC Bank SME Business Loan
Interest rate15.75% p.a. onwards
Processing fee0.99% of the loan amount
Loan amountUp to Rs.40 lakh (Rs.50 lakh in select locations)
Loan repayment tenureUp to 48 months
MSME Loan Interest Rates of NBFCs
NBFCInterest Rate
Fullerton India17% p.a. to 21% p.a.
LendingKart15% p.a. to 27% p.a.
Mahindra FinanceAt the discretion of the lender
Muthoot FincorpAt the discretion of the lender

Below are details of some of the popular NBFCs in India offering MSME loans:

Fullerton MSME/SME Loan
Interest rate17% p.a. to 21% p.a.
Processing feeUp to 6.5% of the loan amount
Loan amountUp to Rs.50 lakh
Loan repayment tenure12-60 months
Lendingkart MSME/SME Loan
Interest rate15% p.a. to 27% p.a.
Processing fee2% to 3% of the loan amount
Loan amountRs.50,000 to Rs.1 crore
Loan repayment tenureUp to 36 months

Goal of MSME Loans

The following uses for MSME loans are available to businesses:

  • Launching a new company or growing an already established one.
  • Invest in furnishings, electrical appliances, lab or testing equipment, plants, and other machines.
  • Purchasing machinery or automobiles.
  • Building construction or purchasing land or premises.
  • Introduction of fresh commercial goods.
  • Fulfil working capital needs, such as purchasing items and raw materials, paying salaries, and stocking inventory.
  • For marketing and advertising.
  • Such additional financial support is necessary for several reasons.

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How to Apply for an MSME Loan

There are two ways for entrepreneurs to apply for MSME loans: online and offline. The following are the procedures to apply online for an MSME loan:

  • Go to the bank’s or lender’s website, choose the MSME loan program, and press the “Apply” button.
  • Complete and apply.
  • To confirm the loan requirements, a bank or lender representative will get in touch with the applicant.
  • The agent will request that the necessary paperwork be submitted.
  • Following document verification, the loan request will be accepted.
  • The applicant will receive an agreement from the lender to finish the procedure.
  • After the applicant signs the agreement, the loan amount will be credited to their account within 48 hours.

An entrepreneur can also pick up an application for a loan by going to the branch of the closest bank or financial institution. The application and necessary documentation must be sent to the branch by the applicant. The loan will be approved by the bank or financial institution following document verification.

Documents Required

Following are the documents required for the MSME Loan.

  • KYC documents of the applicant, such as an Aadhaar card, PAN card, passport, voter’s ID, driving license and utility bills.
  • Business address proof, such as lease agreement, rental agreement, sale deed or utility bills.
  • Previous six months’ bank statement.
  • Business establishment certificate of incorporation certificate.
  • Profit and loss account and balance sheet of the previous two years.
  • PAN card and income tax return of the business.
  • Any other document as required by the bank or NBFC.

Collateral for MSME Loans

Banks and NBFCs provide MSME loans, which can be secured or unsecured business loans. But the majority of lenders offer unsecured business loans, sometimes referred to as loans without collateral. Collateral requirements vary depending on the loan plans that the borrower chooses. Collateral-free loans do not require borrowers to provide banks or non-bank financial institutions with security or collateral to receive the loan amount.

MSME Credit Programme

Every bank offers a different set of business financing programs. On the bank’s website, borrowers may see the several MSME credit programs that are available. The government also provides MSME credit programs through several banks and non-bank financial companies (NBFCs), in addition to the bank-offered programs. Among the government-initiated MSME programs available from banks or other financial institutions are the following:

  • Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
  • Credit Linked Capital Subsidy Scheme (CLCSS).
  • Credit Guarantee Scheme for Subordinate Debt (CGSSD).
  • MUDRA Yojana under PMMY.
  • National Small Industries Corporation (NSIC) Subsidy.
  • Prime Minister Employment Generation Programme (PMEGP).
  • Prime Minister’s Rozgar Yojana (PMRY).
  • PSB loans in 59 minutes.
  • Standup India.
  • Startup India.
  • Equity Infusion for MSMEs through Fund of Funds.
  • SIDBI Make in India Loan For Enterprises (SMILE).

FAQ’s

Does the MSME sector fall under the purview of priority sector lending?

Priority sector lending is defined as lending to the weaker, employment-intensive, and population-impacting sectors of the economy. Because the MSME sector is a priority sector, it is eligible for priority sector lending. A few other industries that qualify for priority sector funding are exports, housing, agriculture, and education.

Do all banks provide loans to SMEs?

The Reserve Bank of India (RBI) has set lending targets for the MSE sector for all Indian banks, both public and private. These regulations require foreign banks with more than 20 branches and domestic scheduled commercial banks (apart from small finance banks and regional rural banks) to contribute 7.5% of their Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure to the microenterprise sector.

Does the credit rating of MSME borrowers’ matter?

While having a credit rating is not required of MSME borrowers, obtaining one will help with credit pricing and may enable them to receive more favourable terms, such as reduced processing fees and interest rates.

Can a person apply for an MSME loan without having to provide collateral?

Banks are required by RBI regulations to provide MSME loans up to Rs. 10 lakh without requiring collateral. Banks may raise this cap to Rs. 25 lakh in some cases, based on the MSME units’ financial standing and performance history.

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