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 go 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

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 Online

Do’s

• Understand your business requirements: 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 online is quick with minimal documentation and speedy 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: Once documents are verified, the lender will sanction your loan based on repayment capacity. Approved funds will be disbursed directly to your business account.

Don’ts

• Multiple Applications: Do not apply with multiple lenders; this impacts your credit score and can result in rejection or higher interest rates.
• Payments: Missing scheduled repayments affects credit score and adds penal charges, creating negative business impact.
• Fine Print: Always read terms and conditions carefully, especially interest rate and penal charges.
• Fake websites: Apply only through genuine lenders. Banks and NBFCs never ask for upfront payment before application. Avoid shady apps/websites.

How to Apply for MSME Loan Online

1. Visit your preferred bank’s official website.
2. Log in if you are an existing customer. If not, create an account.
3. Fill in mandatory details including personal, income and business information and loan requirements.
4. Submit the loan application form online.
5. Upload mandatory documents such as personal, business and income proofs.
6. A bank executive will contact you for further procedures.
7. After document verification, the loan is approved.
8. The approved funds are disbursed to your business account within the specified time.