MSME loans are business loans offered to the MSMEs or Micro, Small and Medium enterprises or to the SMEs or Small and Medium Enterprises in the form of SME loans. These loans are offered for the advancement of business and other activities like purchase of machinery and raw material, to meet the working capital requirements, and to invest in fixed assets. Banks and financing institutions like NBFCs offer MSME Business loans. However, the interest rates and loan amount vary across the banks and NBFCs. These loans are usually offered to small business owners, women entrepreneurs, and startups. Eligible enterprises for this scheme are Sole Proprietorships, Partnership Firms, Manufacturing or service-based micro and small enterprises excluding Retail traders, educational institutions, training institutions, agriculture & Self Help Groups.
MSME stands for Micro, Small and Medium Enterprises. MSMEs are classified into 2 categories; one is manufacturing enterprise engaged in manufacturing or production of goods and second is service enterprise engaged in providing services. These categories were earlier defined in term of investment in plant and machinery or equipment. As per the Atmanirbhar Covid 19 relief package announcement, the classification of MSMEs has been changed from investment to investment and annual turnover.
Old MSME Definition
|Investment < Rs 25 lacs
|Investment < Rs 5 crore
|Investment < Rs 10 crore
|Investment < Rs 10 lacs
|Investment < Rs 2 crore
|Investment < Rs 5 crore
New MSME Definition as announced on 13th May 2020
- MSME Classification Criteria has been changed from Investment to Investment and Annual Turnover.
- The Investment limits for classification for MSMEs have been increased which means more enterprises are now eligible for MSME schemes.
- Classification Criteria is now uniform for Manufacturing and Services Enterprises.
|Manufacturing and Services
|Investment < Rs 1 crore and Turnover < Rs 5 crore
|Investment < Rs 10 crore and Turnover < Rs 50 crore
|Investment < Rs 20 crore and Turnover < Rs 100 crore
Relief Package for MSMEs
COVID19 Relief and Atmanirbhar package for MSMEs announced on 13th May 2020
- Banks and NBFCs to provide Emergency Credit Line to MSMES to up to 20% of entire outstanding credit as on 29.2.2020
o Eligible Borrowers: Up to Rs 25 crore of outstanding loan and up to Rs 100 crore of turnover
o Loan Tenure: 4 years with 1 year moratorium
o Guarantee: 100% credit guarantee cover by government to Banks and NBFCs.
o Interest: Interest Capped and No Guarantee Fee
o Validity: Scheme available till 31st Oct 2020
- Subordinated Debt along with partial guarantee support from government to banks for providing Rs 20000 crore subordinated debt to stressed and NPA MSMEs. Government to take the risk cover up to first 20% of the loss
- Fund of Funds with a corpus of Rs 10000 crore to be set up to provide equity funding support to MSMEs with high growth potential
- New Definition of MSMEs announced
- Global Tenders for any government procurement of up to Rs 200 crore disallowed which means more opportunity for domestic MSMEs
- All MSME receivables from Gov and CPSEs to be released in the next 45 days.
Government MSME Schemes
|The Mudra loan yojana was launched to provide adequate functioning to the non-corporate MSMEs. The scheme focuses more on the priority sector lending, with maximum lending of Rs 10 lakhs.
|Credit Guarantee Funds Trust for Micro and Small Enterprise or CGTMSE
|CGTMSE is an MSME scheme launched by the Government of India to provide collateral-free loans to the existing and new Micro and Small scale industries. The loans are granted for a maximum amount of Rs 1 crores.
|Prime Minister’s Employment Generation Programme or PMEGP
|PMEGP is an integrated subsidy scheme linked with Prime Minister Rojgar Yojana. The scheme was launched in 2008 and aims to provide business opportunities for the unemployed youth.
MSME Schemes by Banks in India
|Working Capital Loan
|This type of loan is offered by banks to fulfil daily cash requirements. Some of the examples of Working Capital Loan are Cash Credit Loan, Bills Discounting Facility and Letter of Credit
|Term Loan is offered to MSMEs for capital expansion, capital expenditure or buying fixed assets. This can be secured and unsecured.
Features of MSME Loan
MSME loans are an effective source of funds for business owners who wish to expand or even set up their businesses on a small scale. Some of the features of MSME loans are listed as follows:
- The MSME loans aim to facilitate credit flow in the MSME sector
- These loans aim to bring in the up gradation of technology to the small business sector
- MSMEs loans provide overall development to the small scale industry through skill development and training programs
- MSME loans are offered to all borrowers who are related to small scale industries: Sole Proprietorship Firms, Partnership Firms, Private Limited Companies, Public Limited Companies. Further, Manufacturing or service-based micro and small enterprises are eligible excluding Retail traders, educational institutions, training institutions, agriculture & Self Help Groups
- The MSME loans are offered for a maximum period of 15 years.
- The MSME loans can be both secured and unsecured, depending on the borrower’s repayment capacity and on the bank’s terms and conditions.
- The interest rates on MSME loans vary across lenders that begin from 13.50%
- Similar to the interest rates, the loan amount can also vary across the lender and the borrower. However, it cannot increase Rs 500 crores.
Compare MSME Loan from Top Banks
An unsecured business loan is a business loan facility that allows a borrower to borrow funds without keeping any asset or mortgage as collateral. Further, since there is no collateral involved, no time is wasted upon collateral verification and documentation. This makes unsecured business loan hassle-free due to easy processing and minimal documentation. Besides, the loan can be availed through online portals of various banks and is quickly approved between 24 hours.
|Bank of Maharashtra
|Indian Overseas Bank
|Bank of Baroda
Eligibility for MSME loan
In order to avail of an MSME loan, one needs to fulfill certain eligibility factors. These are listed as follows:
- The business for which loan is availed should be set across the service or manufacturing sector.
- The investments in the manufacturing sector should not exceed Rs. 10 crores.
- The investments in the service sector should not exceed Rs. 5 crores.
- The business should be in operation for more than six months, in case the fund is borrowed for business expansion.
- The business set up should not fall under the blacklisted categories.
- The applicant of MSME loan should be aged above 25 years of age.
MSME Loan Schemes
Similar to Banks and NBFCs, MSME loans are also offered to the potential borrowers by the Government of India. The schemes are funded by the Ministry of Micro, Small and Medium Enterprises, in order to fulfill the financing needs of the budding businesses and thereby enhance the socio-economic conditions of the country.