What is 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 them purchase advanced machinery, equipment, stock, paying salaries to employees, etc. It can also help to grow and enlarge MSMEs.

How to Apply for MSME Loans?

Entrepreneurs can apply for MSME loans in two ways: online and offline. The steps to apply for an MSME loan online are as follows:

Step 1: Visit the website of the bank/lender and select the MSME loan scheme and click on the ‘Apply’ button.

Step 2: Fill out the application form and submit it.

Step 3: A representative of the bank/lender will contact the applicant to verify the loan requirements.

Step 4: The representative will ask to submit the required documents. 

Step 5: The loan request will be approved after document verification. 

Step 6: The lender will send an agreement to the applicant to complete the process. 

Step 7: The loan amount will be credited to the applicant’s account within 48 hours of signing the agreement.

An entrepreneur can also visit the nearest bank or financial institution’s branch and request a loan application form. Applicants need to submit the application and required documents to the branch. The bank/financial institution will approve the loan after verifying the documents.

Eligibility for MSME Loans

Given are the eligibility criteria for MSME loan schemes:

• All MSMEs engaged in the trading, manufacturing and service sectors.
• The credit score must be 750 or above.
• A business must have a minimum of Rs.2 lakhs income per year, and their minimum turnover should be around Rs.10 lakhs per year.
• Businesses must have a good repayment history with financial stability.
• Businesses should not have any previous loan default with a financial institution.
• The minimum age of the applicant or authorised signatory of a business to take the loan must be 21 years, and the maximum is 65 years.
• The applicant or authorised signatory must have worked in the enterprise or organisation for a minimum of three years and have a minimum of five years of experience in the business field.
• Individuals, business owners and MSMEs who have established the following type of business engaged in the services, trading and manufacturing sectors can apply for MSME loans:
  • Private limited companies
  • Public limited companies 
  • Sole proprietorships 
  • Partnership firms
  • Limited Liability Partnerships (LLPs)

Documents Required for MSME Loan

To apply under any MSME loan scheme, applicants must provide valid documents to establish their business identity, financial credibility, and repayment ability. The commonly required documents for MSME loans are:

I. Identity Proof

• Aadhaar card
• PAN card
• Voter ID
• Passport
• Driving Licence of the business owner/partners/directors.

II. Address Proof

• Utility bills
• Rental/lease agreement
• Property documents
• Passport showing the current business or residential address

III. Business Proof

• GST registration certificate
• Udyam Registration (Udyog Aadhaar)
• Partnership deed
• Memorandum of association (MOA)
• Articles of association (AOA)
• Shop act licence

IV. Financial Statements

• Last 6–12 months’ bank account statements
• Income tax returns (ITR)
• Audited balance sheet
• Profit & loss statement

V. Business Plan/Loan Purpose

• Expansion details
• Purchase of machinery
• Working capital requirement

VI. Photographs

Passport-size photographs of the applicant/partners

VII. Additional Documents (if applicable)

• Quotation of machinery/equipment to be purchased
• Project reports
• Security/collateral documents

Banks and NBFCs may request additional documents depending on the type of MSME loan and borrower profile. Submitting accurate documents ensures faster approval and smoother loan disbursal.

Types of MSME Loans

Here are the various types of MSME loans:

Working Loans

Working capital loans are short-term loans which helps a business meet its daily cash needs and operational expenses. These loans are offered by banks and various financial institutions.

Term Loans 

Term loans are for long-term investments, such as capital expansion, capital expenditure, or purchasing fixed assets. MSMEs can apply for short-term loans by banks and financial institutions.

MSME Loan Schemes

Several MSME loan schemes are available in India to meet different business needs, from working capital to expansion and technology upgrades. Below are some of the most popular government-backed and institutional loan options:

Pradhan Mantri Mudra Yojana (PMMY)

The Pradhan Mantri Mudra Yojana (PMMY) offers MUDRA loans up to Rs. 20 lakh to non-corporate, non-farm small or micro-enterprises. These loans are provided through Commercial Banks, Small Finance Banks, MFIs, and NBFCs, with the option to apply online via the JanSamarth portal. 

PMMY offers four schemes: ‘Shishu’, ‘Kishore’, ‘Tarun’ and ‘Tarun Plus’. ‘Shishu’ offers loans up to Rs.50,000. ‘Kishor’ provides loans above Rs.50,000 up to Rs.5 lakhs. ‘Tarun’ provides loans above Rs.5 lakhs up to Rs. 10 lakhs. ‘Tarun Plus’ offers loans above Rs. 10 lakhs up to Rs. 20 lakhs.

Prime Minister’s Employment Generation Programme (PMEGP)

The maximum cost of the project or unit admissible in the manufacturing sector is Rs.25 lakhs and in the business or service sector is Rs.10 lakhs for assistance under this scheme. Under this scheme, a credit subsidiary of 15% to 25% is provided for project or unit of Rs. 50 lakh in the in manufacturing sector and Rs. 20 lakh in the business or service sector.

Credit Guarantee Trust Fund for Micro & Small Enterprises (CGTMSE)

The Ministry of MSME and the Small Industries Development Bank of India (SIDBI) jointly established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement a credit guarantee scheme for MSMEs. 

The guarantee cover available under the scheme is to the extent of 75%/ 80%/85% or 90% of the sanctioned amount of the credit facility. For micro-enterprises up to 5 lakhs, the extent of guarantee cover is 85%. The eligible institutions can apply for the credit guarantee scheme from the CGTMSE website. 

Interest Subsidy Eligibility Certificate (ISEC)

The Interest Subsidy Eligibility Certificate (ISEC) Scheme was introduced for funding khadi programmes undertaken by khadi institutions. Under this scheme, credit at a concessional interest rate of 4% p.a. for working capital of the khadi institutions. 

The difference between the 4% and actual lending rate is paid by the Central Government through the KVIC to the lending banks. The khadi institutions can apply for this scheme to the financing bank along with the ISEC certificate issued by the KVIC.

Small Industries Development Bank of India (SIDBI) MSME Loans

The Small Industries Development Bank of India (SIDBI) offers various MSME loans, such as machinery loans, green finance loans, project loans and working capital loans. These loans help MSMEs to purchase plant and machinery, executing projects or providing energy services, purchase of land and construction of factory building or provide working capital assistance for working capital requirements. 

The SIDBI MSME loans start from Rs.3 crore to Rs.50 crore with an attractive interest rates. The eligible MSMEs can apply for these loans from the SIDBI website.

MSME Business Loan for Startups in 59 Minutes

The Government of India offers MSME Business Loan for Startups in 59 Minutes. The processing of these loans is completely online and are processed within one hour. Under this, MSMEs can obtain term loans, working capital loans and mudra loans of upto Rs.5 crore. Eligible MSMEs can apply for this loan through the PSB Loans in 59 minutes portal.

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 building or acquisition of land/premises.
• For launching a new business products.
• To meet working capital requirements like stocking up inventory, paying salaries, purchase of goods and raw materials, etc.
• For marketing and advertising purposes.
• Helps prevent delays in business activities.

The MSME loan scheme framework in India provides entrepreneurs with multiple funding options, from Mudra loans for micro businesses to large project loans under SIDBI. With competitive MSME loan interest rates, these schemes ensure access to affordable credit for working capital, expansion, and technology upgrades.