An MSME loan or an SME loan is a credit facility extended by banks, small finance banks and non-bank finance companies to
micro, small and medium enterprises.
MSME loans are either unsecured or secured loans given by financial institutions to meet various expenses to businesses as
well as individuals, sole proprietors and partnership firms. Startups are also eligible for MSME loans.
Features
Loan amount: MSME loans can be of varying amounts depending on the requirement of businesses. Most banks and
NBFCs provide loans starting from Rs. 50,000. The loans can up to Rs. 10 crores or even higher.
No collateral: Lenders do not seek any collateral for unsecured MSME loans and hence small business owners don’t
have to worry about providing any security. Secured loans, however, do require collateral.
Interest rate: The MSME loan interest rate depends on the lending institution and the nature of the business of the
applicant.
Flexible repayment: Banks and NBFCs provide flexible repayment options for the repayment of MSME loans. The
tenure is designed based on the cash flows and other receivables. Usually, the tenure ranges from 1 to 5 years but it
can be mutually decided by the lender and borrowers. There is also an option for part-repayment.
Digital application: The MSME loan can be applied for online, cutting down on the hassle of paperwork, which often
results in delays in availing loans. Most lenders provide an end-to-end digital application process.
Approval process: Once all the documents are submitted, lenders undertake a verification exercise. Post that, the
MSME loan amount is disbursed within 3-4 days of the application.
Processing fees: Borrowers may have to pay charges such as processing fees, which usually range between 2-3% of
the loan amount. There are no other hidden charges levied on borrowers.
Purpose
Start or expand your enterprise.
Procure Plant & Machinery, including testing or lab equipment, electrical appliances, etc.
Construct buildings or acquire land/ commercial properties.
Introduce new product lines or settle supplier bills through Bill Discounting.
Fulfill working capital needs like salaries, raw material purchase, inventory stocking and marketing.
Invest in machinery/ equipment or vehicle fleets.
Obtain additional funds for diverse business requirements.
Eligible entities that can apply for MSME loans
You, as an individual, startup, MSME, business owner or self-employed professional, along with women entrepreneurs and
individuals from SC/ST/OBC categories are eligible for MSME loans. Entities such as Private or Public Limited Companies,
Sole Proprietorships, Partnership Firms and Limited Liability Partnerships (LLPs) operating in trading, services and
manufacturing sectors can also apply.
Documents required
KYC documents
Proof of business ownership in the form of business registration certificate or GST filing
12 months of bank statements of the main business account
Other financial documents
MSME loan schemes initiated by the Government of India
Some popular schemes include:
Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
Credit Linked Capital Subsidy Scheme (CLCSS)
Credit Guarantee Scheme
Pradhan Mantri Mudra Yojana
National Small Industries Corporation (NSIC) Subsidy
The Prime Minister Employment Generation Programme (PMEGP)
Prime Minister’s Rozgar Yojana (PMRY)
PSB Loans in 59 minutes under SIDBI
Startup India Scheme
Do’s and Don’ts when applying for an MSME loan online
Do’s Don’ts
Understand your business requirements: Before
applying for an MSME loan, assess your business
needs, financial goals and the purpose of the loan.
This clarity will streamline your loan proposal.
Choose the right lender: Look for a lender offering
flexible terms and conditions tailored to your
business needs. Opt for simplicity and flexibility in
the application process.
Apply online: Utilize the convenience of online
application processes. Applying for an MSME loan
online is quick with minimal documentation and
speedy fund disbursal.
Prepare necessary documentation: Ensure you have
all required documents ready for submission.
Familiarize yourself with the lender’s documentation
process to expedite your application.
Await sanction and disbursement: Upon submission
and verification of your documents, the lender will
sanction your loan based on your repayment capacity.
Once approved, funds will be disbursed directly to
your business account for immediate use.
Multiple Applications: Do not apply for MSME loans
with multiple lenders because it will severely impact
your credit score. A poor score can lead to rejection
of a loan application or the borrower may have to pay
a higher rate of interest. Both these cases can come in
the way of the growth of MSMEs.
Payments: In case borrowers do not adhere to
repayment schedule on current debt, it can directly
affect the credit score as well as put additional burden
in the form of penal charges. In addition, poor
repayment track record could lead to a negative
impact on the business.
Fine Print: While lenders take efforts in making
borrowers understand all the terms and conditions,
applicants must take time out and read all the details,
especially those related top interest rate and penal
charges.
Fake websites: In recent years many digital lending
apps and websites have mushroomed that allow
people seeking to take MSME loan apply easily.
Borrowers must double check that the application is
made with a genuine lender. One of the few things to
keep in mind is that formal financial institutions like
banks and NBFCs never ask for any upfront payment
even before application is made. If any lender asks
for such upfront payment while applying, the
applications must not be made with that particular
website.
How to apply for MSME loan online?
Step 1: Visit your preferred bank’s official website.
Step 2: Log in if you are an existing customer. If not, create an account.
Step 3: Fill in mandatory details including personal, income and business information and loan requirements.
Step 4: Submit the loan application form online.
Step 5: Upload mandatory documents such as personal, business and income proofs.
Step 6: A bank executive will contact you for further procedures.
Step 7: After document verification, the loan is approved.
Step 8: The approved funds are disbursed to your business account within the specified time
Recent Comments