Micro, small, and medium-sized business (MSME) sector growth and global competitiveness would be bolstered by a number of initiatives outlined by Finance Minister Nirmala Sitharaman. Among these initiatives is a Rs 100 crore Credit Guarantee plan for MSMEs, which offers term loans for the purchase of machinery and equipment from third-party guarantees or collateral. In this post you get every necessary information regarding this scheme such as benefits, eligibility, objective, documents, interest rate and how to apply.
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MSME Loan
Entrepreneurs and company owners can apply for Micro, Small and Medium-Sized Enterprise (MSME) loans. An MSME loan is a type of credit arrangement that banks and non-banking financial firms (NBFCs) provide to small and medium-sized businesses. They provide MSME loans with little to no collateral at affordable interest rates.
For a new business, an MSME loan is ideal for managing the enterprise and improving its financial position by helping with the acquisition of state of the art machinery, equipment, stock, employee pay, etc. It could also help with the growth and expansion of MSMEs.
Overview Of MSME Loan
| Name of the Article | MSME Loan |
| Interest rate | 8.75% p.a. onwards |
| Processing fee | Up to 3% of the sanctioned loan amount |
| Loan Amount | There is no upper limit and a maximum of Rs. 2 crores, which can be exceeded based on company needs |
| Repayment Tenure | From 12 months to 15 years |
| Foreclosure charges | Nil to 5% of the outstanding principal amount |
| Credit facility type | Term loan (short, intermediate and long-term), working capital loan, cash credit, overdraft, bill discounting, letter of credit and bill of purchase |
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Objective Of MSME Loan
The main objective of this scheme is to digitalize and automate the many business loan procedures that are provided such as term loans, working capital loans and mudra loans.
Benefits Of MSME Loan
- Establishing a new business or expanding an existing one.
- Make purchases of furniture, appliances, testing or laboratory supplies, plants, and other machinery.
- Buying vehicles or equipment.
- Building a structure or acquiring real estate.
- Introduction of new products for sale.
- Satisfy working capital requirements by paying workers, stocking inventories and making purchases of goods and raw materials.
- For advertising and marketing.
- For many reasons such additional financial help is required.
Eligibility Criteria Of MSME Loan
- A minimum credit score of 750 is necessary.
- A firm must have a minimum yearly turnover of around Rs. 10 lakhs and at least Rs. 2 lakhs in income.
- Companies should be solvent and have a good history of paying their debts.
- Financial institution loan defaults should not be an organization’s past.
- The lowest age to accept a loan is 21 and the maximum age is 65 for the applicant or a business’s authorized signatory.
- The applicant or authorized signatory must have worked for the firm or organization for at least three years and have at least five years of business experience.
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Interest Rates
MSME Loan Interest Rates Of Top Banks
| Bank Name | Interest Rate |
| Indian Bank | 8.75% p.a. onwards |
| Central Bank of India | At the discretion of the bank |
| Punjab and Sind Bank | 9.05% p.a. onwards |
| Punjab National Bank | 9.60% p.a. onwards |
| State Bank of India | 8.25% p.a. onwards |
| Canara Bank | At the discretion of the bank |
| UCO Bank | 8.70% p.a. onwards |
| Union Bank of India | At the discretion of the bank |
Popular Banks Offering MSME Loans
| SBI SME smart score loan | |
| Interest rate 8.25% p.a. onwards | 8.25% p.a. onwards |
| Processing fee | 0.40% of the loan amount |
| Loan amount | Up to Rs.50 lakh |
| Loan repayment tenure | Up to 7 years |
| HDFC Bank SME Business Loan | |
| Interest rate | 15.75% p.a. onwards |
| Processing fee | 0.99% of the loan amount |
| Loan amount | Up to Rs.40 lakh (Rs.50 lakh in select locations) |
| Loan repayment tenure | Up to 48 months |
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MSME Loan Interest Rates of NBFCs
| NBFC | Interest Rate |
| Fullerton India | 17% p.a. to 21% p.a |
| LendingKart | 15% p.a. to 27% p.a |
| Mahindra Finance | At the discretion of the lender |
| Muthoot Fincorp | At the discretion of the lender |
Popular NBFCs offering MSME Loans
| Fullerton MSME/SME Loan | |
| Interest rate | 17% p.a. to 21% p.a |
| Processing fee | Up to 6.5% of the loan amount |
| Loan amount | Up to Rs.50 lakh |
| Loan repayment tenure | 12-60 months |
| Lendingkart MSME/SME Loan | |
| Interest rate | 15% p.a. to 27% p.a |
| Processing fee | 2% to 3% of the loan amount |
| Loan amount | Rs.50,000 to Rs.1 crore |
| Loan repayment tenure | Up to 36 months |
Required Documents
- Aadhaar card
- PAN card
- Voter ID
- Utility bills
- Address proof
- Bank statements previous six months
- The balance statement and profit and loss account for the preceding two years.
- PAN card and the business’s income tax return.
- Any other documents that the bank or NBFC specify.
Read Also –Capital Gain Account Scheme
How To Apply For An MSME loan
- First you have to visit the Official Website of the scheme.
- The homepage will appear on your screen.
- Choose the MSME loan scheme.
- Click on the Apply button.
- You have to complete and apply.
- An applicant will be contacted by a bank or lender representative to confirm the loan conditions.
- The agent will ask for the submission of the required documents.
- The loan request will be approved once the documents have been verified.
- The lender will provide the applicant with an agreement to complete the process.
- Within 48 hours of the applicant signing the contract, the loan amount will be deposited to their account.
FAQ’s
Does the MSME borrower’s credit rating matter?
While MSME borrowers are not needed to have a credit rating, having one would assist with credit pricing and can allow them to get better conditions such as lower interest rates and processing costs.
Is MSME registration mandatory or voluntary?
Businesses voluntarily register as MSME’s in order to take advantage of the benefits it provides.
Are loans to SMEs offered by all banks?
All Indian banks, public and private, have been given objectives to lend to the MSE sector by the Reserve Bank of India (RBI). Foreign banks with more than 20 branches and domestic scheduled commercial banks, excluding small finance banks and regional rural banks are required by these regulations to contribute to the microenterprise sector 7.5% of their Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure.