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Comprehensive Guide to Business Loans for MSMEs

calendar01 Feb, 2023
timeReading Time: 6 Minutes
Comprehensive Guide to Business Loans for MSMEs

Micro, Small, and Medium Enterprises or MSMEs are the backbones of the Indian economy as they contribute significantly to the Gross Domestic Product or GDP[1] of the country and also provide employment to many people. MSMEs include manufacturing enterprises engaged in the production or manufacture of goods in relation to any industry or using a plant or machinery to add volume to the final product having a distinct character name or use. It also includes service enterprises which are engaged in rendering similar services. The Micro, Small and Medium Enterprises Development act of 2006 or MSMED, focused on providing a framework catered specially to MSMEs. The Government of India has constantly been striving to boost MSMEs by paving ways for them to get business loans efficiently. Scroll down to check more about Business Loans for MSMEs.

What is an MSME Loan? – Business Loans for MSMEs

MSME loans are credit facilities available to small scale and medium businesses offering MSMEs the opportunity to better the financial status of one’s businesses. Business loans are readily available to MSMEs to help business owners and entrepreneurs with their working capital requirements to buy new products, equipment and machinery, expand the infrastructure or pay salaries to employees, among other things. An MSME loan is ideal for entrepreneurs looking to expand the business of their small or medium enterprises.

Some of the primary features of an MSME loan are mentioned below:

  • MSME loan schemes provide time intervals which are flexible and tailor-made to suit individual business needs, allowing the borrower to repay the money taken quickly and without any hassles.
  • MSME loans are easily granted regardless of the purpose behind seeking such loans. It can be taken to purchase new equipment or upgrade old machinery, enhance production levels or expand the business.
  • MSME loan interest rates are often low and begin at 7.65% per annum.
  • MSME loans generally have additional costs, which are minimum, and this is inclusive of any cost of loan and processing fees of the loan borrowed. There are no further or hidden charges.
  • MSME loan approvals are easy and hassle free. If a business is eligible for the loan, it can be approved in a matter of few days or even a few hours. Once the eligibility of the applicant is assisted and all the necessary documents have been submitted and verified, the loan amount shall be credited to the account of the applicant online.

MSME Loan Schemes Introduced by the Government – Business Loans for MSMEs

The Indian government has launched many MSMEs schemes to provide financial support to small and medium businesses ruined during COVID-19. The following schemes were established by the government for this purpose:

  • Pradhan Mantri Mudra Yojana or PMMY
    PMMY Offers the possibility hey to small and micro enterprises to avail of a loan amount of ₹10,00,000. These loans are offered by banks, NBFCs, microfinance lenders and other similar entities.
  • Equity Infusion for MSMEs via Fund of Funds
    This particular loan is provided to assist MSMEs in their growth phase. It is offered to underserved MSMEs which have growth potential.
  • Prime Minister’s Employment Generation Programme or PMGEP
    It’s a credit linked subsidy programme developed especially to help MSMEs. The loan is granted to prescribe groups to kick start their businesses by covering 15%  to 35% of the total cost of the project initially and subsequently providing the reminder amount at regular intervals.
  • MSME Business Loan in 59 Minutes for Startups
  • Credit Guarantee Scheme for Subordinate Debt
  • Credit Linked Capital Subsidy Scheme or CLCSS
  • SIDBI Make in India Loan for Enterprises or SMILE
  • Credit Guarantee Trust Fund for Micro and Small Enterprises or CGT MSE

Benefits of Obtaining Business Loans for MSMEs

MSME loans can benefit small and medium businesses in many ways. Some of the advantages of obtaining Business Loans for MSMEs are mentioned below:

  • Rate of Interest
    One of the most important factors when deciding upon any credit facility is the rate of interest. Low rates of interest allow the applicant to save some money and avoid the hassle of paying exorbitant amounts of money in the name of interest. MSME Loans are favourable due to the low rates of interest. However, the rate of interest applicable to a particular applicant shall be decided upon by the lender based on various parameters.
  • Collateral free loans
    MSME loans do not require pledging any collateral prior to obtaining the loan, as these loans are intended to help micro, small and medium enterprises work productively while improving their financial condition.
  • Accessibility
    Accessibility of loans is another essential factor which must be considered while availing of a credit facility. Generally, obtaining approvals for business loans can be an extremely time consuming process, often making it a daunting task for entrepreneurs to raise capital. In contrast, MSME loans Are easily accessible as they get approved within minimal time and documentation.
  • Efficiency
    Many small scale and medium scale businesses are opting for MSME loans due to flexibility and efficiency. Most of these loans are often a short term which helps business owners maintain continuous cash flow to meet various business needs besides proper asset allocation.
  • Fast funding
    After the applicant applies for an MSME loan for a business, one does not have to wait for a long time to receive the money. The applicant just needs to make sure that she meets the eligibility criteria set forth by the lender and submit all essential documents and fulfil the requisite conditions. Once the applicant meets the eligibility criteria and all the documents are in order, the amount will be credited to the applicant’s account within a minimal time.

Eligibility to Obtain Business Loans for MSMEs

Banks and financial institutions have different eligibility criteria for individuals or businesses to be eligible to obtain Business Loans for MSMEs from them. However, the eligibility criteria applicable generally are as follows:

  • The minimum age of the applicant seeking to obtain a loan must be 18 years, while the maximum age must be 65 years during the maturity period.
  • Individuals, small scale businesses and private sector enterprises are eligible to take MSME loans
  • a business must have an income of a minimum ₹2 lakhs per annum, and the minimum turnover of the business must be around ₹10 lakhs every year. This varies from lender to lenders
  • The applicant borrowing money must have been associated with the organization for at least three years and have a work experience of at least five years in the specific field of business.

Documents Required to Obtain Business Loans for MSMEs

There are some essential documents which every applicant is required to submit to avail of Business Loans for MSMEs. The documents required are as follows:

  • Identity proof like Aadhaar card or PAN card of the applicant
  • Address proof of the applicant like utility bills
  • Business address proof like utility bills
  • Business establishment certificate of the applicant’s business
  • KYC documents of the applicant and her organization
  • Income tax statement and bank statement of the applicant for the last six months
  • Tax documents like income tax returns of the applicant’s organization for the previous two years
  • Income proof like profit loss statements, financial statements of the applicant’s organization for the last two years

Steps to Obtain Business Loans for MSMEs

Before opting for Business Loans for MSMEs, the applicant must clearly understand the requirements of her business, its financial goals and the reason for choosing an MSME loan, the amount required, how the amount will be put to use and the expected gains or returns from the business. The applicant must also choose the right lender and keep all the necessary documents ready beforehand.

Business Loans for MSMEs can be obtained by following the simple steps mentioned below:

  • Step 1: The applicant is required to visit the website of her chosen lender and, after carefully comparing the loan amount, ease of applicability, eligibility criteria, interest rates, processing fees, tenure of repayment, features and other information regarding MSME loans provided by different lenders.
  • Step 2: The applicant shall be required to create an account, if there isn’t one already, with the particular bank or financial institution to apply for the loan. The applicant shall then log in to her account and navigate to the MSME loan section. The applicant is required to duly fill out the application form after reading the instructions carefully. The applicant shall be required to fill in basic details like date of birth as provided on the PAN card and phone number.
  • Step 3: The applicant shall also be required to enter information pertaining to her business along with her income details. The applicant should also give requisite information in relation to her business venture, like the annual earnings and turnover along with the applicant’s annual income, to allow the bank or financial institution to evaluate the applicant’s eligibility. Most lenders will further require KYC proof, bank account and PAN details of the business, proof of ownership of the business, profit loss statements, and ITR, among other things.
  • Step 4: The applicant shall be required to provide further information in relation to the business and its operation.The applicant can submit the required documents either by scanning and uploading them online or by visiting the lender’s branch office.
  • Step 5: once the applicant has provided all the information and documents as mentioned above, the bank or the financial institution, the latter shall verify all the documents and also provide details regarding the maximum amount the applicant can avail for the MSME loan of that particular bank or financial institution. The applicant can also evaluate the interest rate and EMI options available.
  • Step 6: The applicant has chosen from one of the loan packages offered by the lender. The applicant must ensure that she reviews the loan amount, the term for repayment, rate of interest, among other things.
  • Step 7: the lender will then send an agreement to the applicant, which the applicant is required to sign to complete the process
  • Step 8: Depending on the bank or financial institution, the money shall be credited into the account of the applicant within 48 hours or less.


The Government of India is constantly on the lookout to improve the ease of doing business in India. It has increasingly been focusing on ways to help MSMEs grow and achieve their true potential. MSME loans have entirely changed the process of availing loans by small and medium enterprises and have become the preferred option to avail quickly and hassle free working capital for various needs of the business. There are many advantages to opting for MSME loans, and it can be highly beneficial to a business seeking for urgent funds. Before applying for Business Loans for MSMEs, applicants must educate themselves on the process involved, the documents required and ways to choose an appropriate lender suited to their business needs.

Read Our Article: MSME Loan – Tips To Get It In A Hassle-Free Way

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