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MSME Loan for New and Existing Business/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 loan products.
Micro, Small, and Medium Enterprise (MSME) loans are offered by numerous financial institutions, including Banks/NBFCs, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Micro Finance Institutions (MFIs), etc. to Individuals, Startups, Self-employed Professionals, MSMEs, Business Owners, Entrepreneurs, Sole Proprietorships, Private and Public Limited Companies (PLCs), Partnership Firms, Limited Liability Partnerships (LLPs), and other business entities engaged in the Services, Manufacturing, and Trading sectors.
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
| Bank/NBFCs | Interest Rate | |
| Axis Bank | 10.75% p.a. onwards | Apply Now |
| Flexiloans | 1% per month onwards | Apply Now |
| HDB Financial Services Ltd. | 8% - 26% p.a. | Apply Now |
| HDFC Bank | 10.75% - 25% p.a. | Apply Now |
| IDFC First Bank | 10.50% p.a. onwards | Apply Now |
| Indifi | 1.50% per month onwards | Apply Now |
| Kotak Mahindra Bank | 16% - 26% p.a. | Apply Now |
| Lendingkart | 12% - 27% p.a. | Apply Now |
| Mcapital | 2% per month onwards | Apply Now |
| NeoGrowth Finance | 15% - 40% p.a. | Apply Now |
| Tata Capital | 12% p.a. onwards | Apply Now |
| UGRO Capital | 9% - 36% p.a. | Apply Now |
Table of Contents
MSME Loan – Purpose, Features, Eligibility & Loan Schemes
MSME loans are majorly 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.
MSME Loan – Highlights
| Interest Rate | Depending on the applicant’s profile and business requirements |
| Loan Amount | No Minimum Limit to borrow & Maximum of up to Rs. 2 crores (Unsecured Business Loan), which can exceed as per business requirements |
| Repayment Tenure | From 12 months to 5 years, may exceed, as per the business requirements |
| Collateral/Security | Not required for unsecured business loans |
| Processing Fee | Nil to 4% of the sanctioned loan amount |
| Foreclosure Charges | From Nil to 5% of the outstanding principal amount |
| Part-payment Charges | From Nil to 4% of the outstanding principal amount |
| Subsidy | Offered by selected financial Institutions |
| Credit Facilities | Working Capital Loan, Bill discounting, Overdraft, Term Loan, Cash Credit, Letter of Credit, Bill of Purchase, Merchant Cash Advance, Loans under Govt. Schemes, etc. |
Eligibility Criteria
- Min. 21 years at time of loan application & Max. 65 years at time of loan maturity
- Minimum business vintage of 1 year
- Annual Business Turnover: As defined by the lender, shall vary from bank to bank
- Good repayment history with financial stability
- No previous loan default with any financial institution
- Decent Credit Score and creditworthiness of the applicant shall be considered by lenders
Eligible Entities that can apply for MSME Loans
- Individuals, Startups, MSMEs, business owners, women entrepreneurs, self-employed professionals, and people falling under SC/ST/OBC category and various other business entities
- Private or Public Limited Companies, Sole Proprietorships, Partnership Firms, and Limited Liability Partnerships (LLPs) engaged only in the trading, services, and manufacturing sectors
Purpose of MSME Loans
MSME Loans offered by financial institutions can be used for the following business-related purposes:
- To start a new business/company or expand the existing enterprises
- Purchase of Plant & Machinery, such as testing or lab equipment/machines, electrical appliances, furniture, spare parts, etc.
- Construction of building spaces, or acquisition of land/factory or commercial properties
- Launch of new product range, or paying the suppliers in form of Bill Discounting
- Meet working capital requirements like paying salaries, purchase of goods and raw materials, stocking up inventory, marketing and advertising purposes, etc.
- Buying new or pre-owned machinery/equipment or a fleet of vehicles
- Any additional funding assistance for business-related purposes
Documents Required
- 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)
- 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
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/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 under SIDBI
- 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 financial benefits.
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:
- Loan Type: Term Loan, Working Capital Loan, Overdraft, Cash Credit, POS Loans, Letter of Credit, etc.
- Collateral-free MSME/Business loans of amounts up to Rs. 2 crores (Unsecured business loan)
- Collateral-free business loans are usually short-term loans that can be repaid within a minimum tenure of 12 months and a maximum of up to 5 years (shall exceed as per business requirements)
- Financial institutions, such as Private and Public Sector Banks, Non-Banking Financial Companies (NBFCs), Regional Rural Banks (RRBs), Co-operative Banks, 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, the credit rating of the company, repayment history, business tenure, nature/type of business, and financial stability.
Factors affecting MSME Loan Interest Rates
The MSME/SME loan interest rates offered by financial institutions are based on various factors as stated below:
- Applicant’s age, income, credit score, financial history/stability, creditworthiness, and repayment capability
- Desired Loan amount and repayment tenure
- Business vintage, annual turnover, and profitability
- Company’s credit rating, nature/ type/ tenure/ volume of business, etc.
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.
| MSME – Merged Criteria: Investment (Plant & Machinery or Equipment) and Annual Turnover | |||
| Sector/Enterprise Type | Micro Enterprise | Small Enterprise | Medium Enterprise |
| Manufacturing & Services Sector, Both | Investment less than Rs. 1 crore
Turnover less than Rs. 5 crore |
Investment less than Rs. 10 crore
Turnover up to Rs. 50 crore |
Investment less than Rs. 50 crore
Turnover up to Rs. 250 crore |
Factsheet of MSME (Udyam) Registration
Total MSME Registration – 1,68,02,525 |
||
| Micro | Small | Medium |
| 1,62,35,057 | 4,57,298 | 40,895 |
Source: Udyam Registration’s Official website. – Data is including Udyam Assist Platform (UAP)
Distribution of Enterprises (Rural and Urban area-wise)
| Sector | Micro | Small | Medium | Total | Share |
| Rural | 324.09 | 0.78 | 0.01 | 324.88 | 51% |
| Urban | 306.43 | 2.53 | 0.04 | 309.00 | 49% |
| All | 630.52 | 3.31 | 0.05 | 633.88 | 100% |
Source: https://msme.gov.in/ (Numbers are in lakh)
MSME Toll-Free No: 1800-123-7376
General Enquiries: 011-23063288 / 011-23063643
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 Machinery loan offered to MSMEs?
Ans. Yes, a machinery loan is a type of business loan offered by various Banks/NBFCs to MSMEs, entrepreneurs and existing businesses. This loan type is mainly considered 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 individuals, startups, 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 MSMEs 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.