Last Updated on 9 months by Anoob P T
MSME stands for Micro, Small, and Medium Enterprises and MSME loan is the loan provided to enterprises that fall under this bracket of businsses.
Every business regardless of small or big needs working capital and if you are operating a Micro, Small, and Medium Enterprise, you might need capital for opertional expenses or even expansion.
This is where MSME loans can come to your aid.
In this post we look at various aspects of MSME loans such as MSME loan definition, MSME loan eligibility, varius banks that offer MSME loans & how to get your MSME loan approved.
Table of Contents
What is MSME Loan
MSME loans (Micro, Small and Medium Enterprise) are the loans particularly offered to small business and start-ups owners.
The tenure for loan repayment varies from lender to lender and the interest rates are majorly offered on the basis of loan amount, applicant’s profile, credit score and business history,
MSME loans are basically unsecured load, meaning offered without the applicant having to provide any collateral to the bank or NBFC.
RBI defines MSME loans as the loans for business enterprises need support in terms of finance, infrastructure and other areas.
New MSME Definition
The difference between the manufacturing and service enterprises has been removed by making the investment amount and annual turnover similar for enterprises in both sectors.
| Sector | 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. 20 crore Turnover up to Rs. 100 crore |
Salient points from New MSME Definition introduced in ‘Atmanirbhar Bharat Abhiyan’ or Self-reliant India Scheme 2020 by Government are :
- Collateral Free Loans to MSMEs
- MSME Loans worth of Rs. 3 lakh crore
- Moratorium period offered is 12 months
- Manufacturing and Service MSMEs shall be considered as same entities
- Repayment Tenure of 48 months
- 100% Credit Guarantee
- To benefit approx. 45 lakh units
Benefits of MSME Loan
★ Quick Online Approval
★ Loan Based on Income
★ Minimum Documentation
★ Collateral-Free Loan
★ Flexible Tenure
Easily Accessible : An applicant just needs to fill out the application and
submit the necessary documents
Quick online approval : Forms can be filled online and the process is hassle free.
Loan Based on Income : Banks lend loans based on the applicant business earnings. Higher the applicant’s income, higher will be the loan amount.
Minimum Documentation : There is less documentation so the loan process is hassle free.
Collateral-free loan : There is no collateral deposit required for this loan. Therefore, the applicant does not have to worry on the bank taking over their assets.
Flexible Tenure : An extended tenure that from 12 months to 60 months.
Easily Maintained : Manage your loan from the net banking website of your financial provider.
Eligibility for MSME Loan
To apply for a MSME, you’re required to meet the eligibility criteria set by your lender to get approved.
The requirements will differ from bank to bank, may even change with the type of scheme offered. However, listed below are the general criteria you will have to meet:
- Your business will have to be categorised in either of the two — manufacturing or service sector.
- The investment limit for micro, small, and medium enterprises varies based on the above mentioned sectors.
- For investments in the manufacturing class:
- Micro : < Rs.25 lakh
- Small : > Rs.25 lakh and < Rs.5 crore
- Medium : > Rs.5 crore and < Rs.10 crore
- For investments in the service sector:
- Micro : < Rs.10 lakh
- Small : > Rs.10 lakh and < Rs.2 crore
- Medium : > Rs.2 crore and < Rs.5 crore
Factors that may affect loan eligibility and benefits
Job Stability: It is beneficial is the business be operational for at least 3 years. Established businesses are considered more loan-worthy as compared to newer organisations.
Credit Score: The credit score is a measuring parameter on which the worthiness of an individual is judged.
Income: Some banks suggest that the applicants have a minimum salary. In unsecured loans, income is quite important as the amount of loan that can be borrowed depends on the applicant’s salary.
Businesses with Accounts in Bank: A bank will prefers to lend loans to business that have accounts with the bank. These companies can easily avail a loan as the bank has prior experience of working with them.
Documents Required for MSME Loan
The documentation required will also differ, depending on the type of business you own and the financial institution you approach.
However, below is a general list of documents you can keep handy during your application :
- Identity proof (PAN card, Aadhaar card, Voter’s ID, passport, etc.)
- Residential proof
- Business registration proof
- Last 12 months’ bank statement
- Business address proof
- Balance sheets for the last three years
- Photocopies of title deeds/lease deeds Partnership deed
- Income tax returns
- Sales tax documents
- Municipal tax document
- Sales tax returns
- Project report
This isn’t an ideal list and your lender may ask you to submit few other
documents too.
For further clarification, it is advisable to get in touch with your potential lender and understand the documentation requirements. You can also visit their online portal to know about any specific requirement.
Difference Between MSME & Business Loan
A typical business loan differs from an MSME loan on many grounds. Major differences are listed below :
Business Types
Business loans are provided to already established companies to fund their growth and expansion strategies.
On the other hand, an MSME loan serves to small scale businesses and startups.
Purpose of the loan
The main goal of the business loan is to help meet objectives such as business growth strategies, expansion, and diversification strategies amongst others.
The key objective of the MSME loan is to meet the business needs such as the purchase of raw material, machinery, managing working capital, marketing, expansion of business operations, etc.
Loan Amount and Tenure
The loan amount that can be availed in case of a business loan is much more as compared to an MSME loan.
Also, the loan tenure of business loans is longer as compared to MSME loans.
Interest Rates :
The interest rate for a business loan is comparatively lower than the interest charged for MSME loans.
Collateral :
Business loans are known as secured loans because of the higher loan amount associated with them. Therefore, to avail a business loan, borrowers are expected to provide their lenders with sufficient security in the form of collateral.
Whereas, MSME loans are usually collateral-free.
Which Bank is Best for MSME
Getting the best loan offer will depend on your credit worthiness and the requirements for the kind of loan you need.
There are well established bank willing to lend to you if you have a good credit background.
Having a good credit score with all the necessary documents and having your business ideas. With a good credit score you would also be able to bargain for low interest rates and higher loan amounts.
Banks That Give Loan to MSME
Most financial institutions, banks and NBFCs provide MSME loans to individuals who are planning to start a business or seek funds for their already existing business.
Below is a compiled list of top banks for MSME loans, their interest rates and other details :
| Bank Name | Interest Rate | Loan Amount | Loan URL |
| Allahabad Bank | 8.75% – 14.55% p.a. | Rs.5 crore | https:// www.indianbank.in/ departments/msme/ |
| Oriental Bank of Commerce | At the discretion of the bank | Up to Rs.5 crore | https:// www.obcindia.co.in/ |
| Andhra Bank | At the discretion of the bank | Up to Rs.5 crore | https:// www.andhrabank.in/ english/MSME.aspx |
| Central Bank of India | 11.25% – 11.75% p.a. | Rs.10,000 to Rs.5 crore | https:// www.centralbankofindia. co.in/English/MSME- BANKING.aspx |
| Indian Bank | 9.75% – 15.10% p.a. | Rs.1 lakh onwards | https:// www.indianbank.in/ departments/msme/ |
| Punjab and Sind bank | 9.95% – 10.5% p.a | Up to Rs.1 crore | https:// www.psbindia.com/ content/msme- framework |
| Punjab National Bank | At the discretion of the bank | Up to Rs.25 crore (can be increased on a case- to-case basis). | https://www.pnbindia.in/ SMEBanking.html |
| State Bank of India | 7.95% – 14.1% p.a. | Up to 500 crore | https://sbi.co.in/web/ business/sme/sme-loans |
| Syndicate Bank | 8.65% – 12.15% p.a. | No maximum loan amount. Depends on a case-to-case basis. | https:// www.syndicatebank.in/ products/loan/msme- loan-product |
| UCO Bank | 8.85% – 11.85% p.a. (+ premium) | Up to Rs.7.5 crore | https:// www.ucobank.com/ english/msme- products.aspx |
| Union Bank of India | At the discretion of the bank | Up to Rs.50 crore | https:// www.unionbankofindia.c o.in/english/apply-for- msme-loan.aspx |
| United Bank of India | 10.25% – 16.25% p.a. | Up to Rs.2 crore | https:// www.unitedbankofindia.c om/English/ PrioritySme.aspx |
If you have any doubts on MSME loan, do ping us using the chat window at the bottom right and we will try to help you out.
Frequently Asked Questions About MSME Loan
What is the MSME Loan?
MSME loan is the loan provided to businesses that fall under Micro, Small, and Medium Enterprises category.
Which bank is best for MSME Loan?
Depends on your type of business, loan tenure and other factors. Check some of the banks in the list above to choose the best bank for your MSME loan.
How Can I get MSME Loan?
You can follow steps to get MSME loan mentioned above with the documentation and your loan should be approved.
What is MSME Loan Interest Rate?
7.80% is the MSME loan interest rate offered by SBI and lot of other banks follow same rates as SBI. Please check with your bank to know the exact rate.
