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MSME Loan – Tips to get it in a hassle-free way

calendar08 Jun, 2021
timeReading Time: 4 Minutes
MSME Loan - Tips to get it in a hassle-free way

MSMEs’ are the backbone of India’s fiscal infrastructure. Apart from being a prominent job creator, the contribution of this sector towards the nation’s GDP is beyond monumental. However, in the past few years, the MSME sector has encountered negative growth owing to stubborn government policies and ongoing pandemics. Considering the impact they have on the country’s economy, the Indian government has recently taken numerous steps for their restoration. But more or less, the situation for them remains the same. For example – they still lack access to easy funding which is imperative for their survival. The GOI and many institutions are gradually gearing up to help them out by rendering access to hassle-free funding. In this article, we will explain everything about MSME loan and other important areas.

An overview of MSMEs’ and MSME Loans

As per the Micro, Small, and Medium Enterprises Development Act 2006, MSMEs are the entities that are engaged with the manufacturing or processing of commodities. Investment and turnover are the two key parameters used for their classification. The following table illustrates the same

Enterprise Investment in Plant and Machinery (INR) Annual Turnover (INR)
Micro < 1 crore < 5 crore
Small < 10 crore < 50 crore
Medium < 50 crore < 250 crore

An MSME loan can be obtained by a firm registered under the MSME scheme to avail finance for improving their operation or strengthening their balance sheet. 

Read our article:MSME Certificate Online: How to Get One for Your Business?

What are the Pros of having an MSME Loan?

Here’s why MSME should consider availing a loan to meet their fiscal requirements:

  • Loan providers act as supportive partners for financially stressed MSMEs in the country. When fiscal deficit seems surging and there is a need for finances within Rs 50 lakh range, these avenues can provide prompt and hassle-free credit.
  • In this digitization age, nearly all financial avenues offer ease of online filing that mitigates the necessity of excessive documentation. All credit-seeker needs to visit the loan provider’s portal and provide the basic details along with mandatory documentation. The portal further measures the request against predetermined options and offers an optimal credit plan.
  • In today’s competitive environment, nearly all prominent lenders defy the concept of “one fit for all” when it comes to credit facilitation. After dropping the loan request, the credit seeker can expect various credit options with flexible repayment and interest rate option.
  • The interest rate available to the MSME falls within the range of 17-21%. However, it may also slash down as low as 11.99% in some cases. The lenders generally take various parameters such as location, income, repayment tenure into account for the interest rate’s computation.
  • Some lender even offers a various tool on their portal that help check eligibility and document requirements. This allows credit-seeker to take prompt and informed decisions regarding their finances.

There are also a plethora of schemes by the GOI which came to effect to help MSMEs operating pan India. Such loans are introduced by the Indian government via multiple banks & NBFCs. For example, the Pradhan Mantri Mudra Yojana scheme renders collateral-free credit to small business owners and MSMEs amounting up to INR 10 lakhs. Even some of the schemes help eligible credit seekers to rejoice in a moratorium for a few months.

Eligibility Criteria for applying for SME/MSME Loan

The loan provider has set up general loan eligibility criteria for companies as well as individuals to be able to apply for an MSME loan. The general guidelines to obtain a loan from financial avenues are as follows:

  • A person’s age should not be less than 22 years while seeking the loan and a max of 65 years at the maturity’s time.
  • Private firms or sole proprietor-based entities involved with trading, manufacturing, or services sector has access to SME loan.
  • The applicant must have at least 5 years of business experience and should have invested 3 years of service life in a business concern.
  • The annual turnover of the business should lie between 2-10 lakhs rupees. The business should have reaped profits for at least two years.
  • The business must have a valid MSME registration in place at the time of dropping the loan request.

Procedures to be followed for availing an MSME loan

Follow the given instructions to obtain an MSME loan

  • First, log into the lender’s portal and fill the web-based form by furnishing legit information. A designated personal will get in touch with you for confirmation. During in-person communication, the representative may ask some basic questions to judge your candidature for a loan.
  • After getting desired information, the applicant may be asked to furnish some documentation for verification. There is no need to provide physical documents as the online portal only seeks a soft copy of the same. However, you may have an option to serve these formalities in an offline mode. After securing the requested documentation, the portal forwards the same to the relevant team for verification.
  • After successful verification and approval of credit request, the lender drafts and shares the loan agreement. Here the applicant must be watchful and look out for any obscure and vague terms in the said agreement.
  • After signing the agreement, the lender disburses the agreed loan amount within 48 hours.

Type of documents that lender seeks for the disbursement of MSME loan

Basic documentation for MSME loan includes:

  • The applicant’s as well as the company’s PAN card.
  • Proof regarding the address of the applicant and the business.
  • Bank as well as income statements in addition to forming 16.
  • Company’s IT returns for last two years along with audited financial statements reflecting profit for at least two years.

Conclusion

MSME is one of those sectors that reins India’s GDP to a considerable extent. Therefore, the survival and development of this sector become an absolute necessity for the Indian government. By relaxing the prevailing norms and establishing multiple credit channels, the government[1] can offer much-needed financial support to stressed MSMEs across this country.

Read our article:MSME Registration status and process: All you need to know

Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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