India is such a country where, from the streets to the big cities, entrepreneurs are based everywhere. You are right that despite contributing 30% to GDP and 45% to exports, the lack of funding has given them five years. If you also run a business and dream of expanding it, then an MSME loan is not just a loan, but an ‘investment’ for your dreams.
What is an MSME Loan?
An MSME loan is a credit facility that banks and Non-Banking Financial Companies (NBFCs) provide to small and medium-scale businesses. They offer MSME loans with limited or no collateral at reasonable interest rates. Certain government loan schemes also provide loans to MSMEs at a lower interest rate for various purposes, such as purchasing machinery, expanding businesses, upgrading technology, etc.
An MSME loan for a new business is ideal for running the MSME and improving its financial status by helping it purchase advanced machinery, equipment, stock, paying salaries to employees, etc. It can also help to grow and enlarge MSMEs.
Features of MSME Loans
- The aim of MSME loans is to provide funds to meet the urgent financial needs of businesses.
- They require minimal documentation compared to larger commercial loans.
- MSME Loans have a lower rate of interest and fees.
- Some MSME Loan schemes offer collateral-free financing, particularly for small and micro enterprises that may lack significant assets to pledge as security.
- There is strong support from the government, like the Credit Guarantee Scheme and the interest subvention schemes for MSMEs.
Benefits of MSME Loans
MSME loan schemes provide the following benefits for MSMEs:
- To start a new business or expand the existing business.
- For purchasing machinery and plants, such as lab or testing equipment, furniture, electrical appliances, etc.
- To construct a building or acquire land/premises.
- For launching new business products.
- To meet working capital requirements like stocking up inventory, paying salaries, purchasing goods and raw materials, etc.
- For marketing and advertising purposes.
- Helps prevent delays in business. In India, MSME loan schemes, ranging from Mudra to SIDBI, offer several affordable options, enabling entrepreneurial activities.
To easily access funds at low interest rates for working capital and expansion.
Documents required for MSME Loans
- Application form
- Latest 12 months’ bank statement
- KYC documents like PAN and Aadhaar
- Latest ITR and financial statements
- Business registration certificate
- As per the bank’s policy, you will have to provide additional documents if requested.
The government has launched several powerful schemes to promote small businesses:
- PMMY (Mudra Loan): This scheme is for new and small businesses and has three categories—Shishu (up to ₹50,000), Kishor (up to ₹5 lakh), and Tarun (up to ₹10 lakh).
- CGTMSE: The biggest concern is often “security,” but under this scheme, the government itself provides the guarantee, allowing you to get a loan of up to ₹2 crore without any collateral.
- PMEGP: If you are starting a new manufacturing or service business, this scheme not only provides loans but also offers substantial subsidies.
- 59-Minute Loan: Thanks to Digital India, loan approvals of up to ₹1 crore can now be obtained online in just 59 minutes.
Different Types of MSME Loans
Every business has different needs; therefore, the loans are also different:
- Working Capital Loan: When you need money for daily expenses, such as paying salaries or buying raw materials.
- Mudra Loans: These are for those starting a business on a small scale (Shishu, Kishor, and Tarun schemes).
- Machinery Loan: If you need to install new machinery, this loan is best because the machine itself acts as collateral.
- SIDBI Loans: Taking a loan from SIDBI is quite beneficial for direct manufacturing units.
Eligibility: Can You Get This Loan?
Generally, the following entities can apply:
- Proprietorship firms and Partnerships.
- Private Limited companies.
- Entrepreneurs are engaged in the manufacturing or service sector.
- Retailers and Wholesalers (with certain conditions).
Where to Get the Loan?
Getting an MSME loan has become much easier than before. Now you don’t need to only approach large government banks. You can get funding through these channels:
- Banks: Whether government or private, every bank is promoting the MSME sector.
- NBFCs: Many private finance companies approve loans quickly without extensive paperwork.
- Fintech Platforms: Modern apps and websites now use AI to offer instant loans based solely on your bank statements and turnover.
Conclusion
Understanding MSME and its categorisation is the first step towards a comprehensive learning about the loans for this sector. MSME Loans offer attractive features like flexible collateral, high loan amounts, minimal documentation, and competitive interest rates. Boost your business with an Axis Bank MSME Samriddhi Loan at competitive interest rates!
