All You Need to Know About Interest Rates on MSME Loan

Micro, Small, and Medium Enterprises (MSMEs) play a major part in our economy. They generate employment opportunities for lakhs of Indians and also contribute to the GDP significantly. The MSMEs are classified based on their investment in Plant, Machinery and Equipment, and Annual Turnover. They are classified as follows:

1. Micro

Investment in Plant and Machinery: Not more than ₹1 crore.
Annual Turnover: Not more than ₹5 crores.

2. Small

Investment in Plant and Machinery: Not more than ₹10 crores.
Annual Turnover: Not more than ₹50 crores.

3. Medium

Investment in Plant and Machinery: Not more than ₹50 crores.
Annual Turnover: Not more than ₹250 crores.

Its importance has been realised by the Government recently, and hence, they have been trying to promote this sector as much as possible. For this purpose, they have been providing financial aid to the MSMEs.

One of the initiatives taken by the Government is the MSME loans. Every business needs loans to:

• Acquire the factory (building) and land for establishing the business enterprise.
• Acquire the permanent capital for getting the business started, such as machinery, equipment, testing equipment, furniture, electrical instalments, and many others.
• To get the working capital in places, such as raw materials, stock in progress, and finished goods.
• Paying creditors and awaiting payments from debtors.
• Launching new products, new product ranges, advertising and marketing expenses, warehousing needs, etc.
• Expanding and diversifying the business.
• Other requirements for which the business is eligible for loans.

Applying for a  loan online has its advantages. You can avail wider choices of creditors such as Banks, NBFCs, SFBs, Fin Techs, etc. They will access your application for the loan, and then the nearest branch and FinTech from a different city will approach you to provide you with the loan.

You can apply for a loan online 24/7, meaning you can do so at your convenience. You can apply for a loan on the official Udyami Mitra website (https://udyamimitra.in/page/msme-loans).

Eligibility Criteria

The eligibility criteria for availing the MSME loans is as follows:

• The applicant has to be of minimum 18 years of age.
• You can get loans for several types of companies such as Private Limited, Public Limited, Sole Proprietorship, Partnership Firm, Limited Liability Proprietorship.
• The business turnover depends on the lender.
• The business needs to be running for two years and should be in profit.
• Satisfactory credit score and repayment history.
• Must have Income Tax Returns and GST returns for two years.

Each bank will have its criteria, and the criteria will be different for new businesses.

Documents Required

Several documents are required from a business who is applying for a loan. Some of them are as follows:

• A business plan, which will give a background of the business.
• Duly filled application form for the MSME loan.
• Valid passport size photographs.
• An identity proof (Passport, Driving License, PAN Card, Voter ID Card, Aadhar Card, etc.).
• A residence proof (Passport, Aadhar Card, lease agreement, telephone bill, electricity bill, etc.).
• An age proof (Passport, Aadhar Card, Voter ID Card, Drivers License, etc.).
• Income proof of the applicant.
• Proof of business existence and address.
• Rent agreement, Memorandum of Association (MoA), Articles of Association (AoA), Sales Deed, etc.
• Copy of licenses, certificates, and registration, if applicable to the business.

Financial Documents

Along with these basic documents, you will also need to submit the following financial documents to apply for an MSME loan:

• Bank statement of the last 12 months.
• Business registration proof.
• Company PAN card copy.
• Proprietor(s) PAN card copy.
• Profit and loss copy of the last two years.
• Balance sheet copy of the last two years.
• Partnership deed copy.
• GST registration proof.
• Other financial documents as required.

Interest Rate of Popular Banks

Interest Rates of Popular Non-Banking Financial Companies (NBFCs)

Collateral

Collateral is not required from borrowers if they are availing unsecured loans or MSME loans. However, there are loans which require some form of collateral to be submitted to the bank. These loans are Equipment Finance, Machinery Loan, Fleet Finance, Letter of Credit, Working Capital Loan, and many others.

Other Loans and Schemes for MSMEs

There are various other schemes and loans which have been implemented by the Government for the MSME sector. Some of them are:

1. MUDRA Scheme

The Micro Unit Development and Refinance Agency (MUDRA) was launched by the Government to help small businesses. It is classified into three categories according to the types of business, purpose, and the loan amount granted.

This loan is offered to shopkeepers, vendors, traders, and MSMEs who are engaged in manufacturing, trading, and service sectors.

The following loans are granted under MUDRA Scheme:

• SHISHU Loan: Loans up to ₹50,000. This is for startups and new businesses.
• KISHOR Loan: Loans between ₹50,001 - ₹5,00,000. This loan is for purchasing equipment, machinery, raw materials, and business expansion of existing enterprises.
• TARUN Loan: Loans from ₹5,00,001 to ₹10,00,000. This loan can be availed by established businesses.

The repayment tenure of these loans is between 3 to 5 years.

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

The CGTMSE scheme has been introduced to provide business enterprises with a strong credit relief system and promote better credit flow to the Micro, Small, and Medium Enterprises (MSMEs). Under this scheme, the MSMEs are provided credit without external collateral or third-party guarantee.

Under the CGTMSE scheme, both old and new micro, small, and medium enterprises can avail credit up to ₹2 Crore.

This scheme also offers rehabilitation facilities for MSMEs. Suppose an MSME business is in poor condition due to factors which are beyond the control of the management and is assisted under this scheme, the maximum credit provided to these businesses is ₹1 Crore.

Also read:

1) How is the Government helping Small Businesses & Startups fight the financial crisis?
2) MSME – Industries that form a Foundation for a Robust Economy
3) All About Small & Medium-Sized Enterprises (SMEs)
4) How to get your business listed on the Stock Exchange?

FAQs

Q. Are there loans available for MSMEs?

Ans. Yes, the Government has launched loans for the Micro, Small, and Medium Enterprises (MSMEs) to promote the sector. They are MSME loans, Micro Units Development and Refinance Agency (MUDRA) loans, Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE), and many others.

Q. Which banks are offering MSME loans?

Ans. A wide variety of banks are offering MSME loans. Some of them are the State Bank of India (SBI), HDFC Bank, Kotak Mahindra Bank, Punjab National Bank, Punjab and Sind Bank, ICICI Bank, UCO Bank, Bank of India, Union Bank of India, United Bank of India, and many others.

Q. What is the new definition of MSME?

Ans. Under the new definition of MSME, the distinction between manufacturing and service enterprises has been removed. The investment and annual turnover criteria for both these sectors is now the same.

Q. What are the documents required to apply for a loan?

Ans. You will require various documents to apply for a loan. You will require a business plan, identity proof, address proof, age proof, GST registration certificate, Income Proof, Proof of Business, Memorandum of Association (MoA), Articles of Association (AoA), and many others.