MSME Loan - Check Features, Eligibility and Interest Rates 2024

Entrepreneurs or business owners can avail of Micro, Small, and Medium Enterprise (MSME) loans. 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. 

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.

MSME Loan Features

The features of an MSME loan are as follows:

• An MSME loan offers flexible time intervals to repay the loan amount without any hassle.
• The MSME loan will be approved in just a few days, and the money will be credited to the MSME account online.
• The ease of availability of MSME loans and quick disbursement helps prevent business activity delays. 
• MSME loans have minimal additional costs, including processing fees. There are no further hidden charges.
• The MSME loan interest rate is significantly low and begins from 8.75% p.a.
• It helps small-scale companies improve their businesses.
• An MSME loan does not require pledging collateral.
• MSME loans support the advancement of developmental technologies, infrastructural development and the modernisation of enterprises across the country, including in Tier-2 and Tier-3 cities and towns.

MSME Loan Eligibility

• 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)

MSME Loan Interest Rate 2023

The MSME loan interest rates of different banks and NBFCs are provided below.

MSME Loan Interest Rates of Top Banks

Popular Banks offering MSME Loans

Below are details of some of the popular Indian banks offering MSME loans:

MSME Loan Interest Rates of NBFCs

Popular NBFCs offering MSME Loans

Below are details of some of the popular NBFCs in India offering MSME loans:

Purpose of MSME Loans

Businesses can obtain MSME loans for the following purposes:

• Starting a new business or expanding an existing business.
• Purchase machinery and plants, such as lab or testing equipment, furniture, electrical appliances, etc.
• Buying equipment or vehicles.
• Construction of building or acquisition of land/premises.
• Launch of new business products.
• Meet working capital requirements like stocking up inventory, paying salaries, purchase of goods and raw materials, etc.
• Marketing and advertising purposes.
• Such other funding assistance required for various purposes.

MSME Loan Apply

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.

Documents Required For MSME Loan 

• KYC documents of the applicant, such as an Aadhaar card, PAN card, passport, voter’s ID, driving license and utility bills.
• Business address proof, such as lease agreement, rental agreement, sale deed or utility bills.
• Previous six months’ bank statement.
• Business establishment certificate or incorporation certificate.
• Profit and loss account and balance sheet of the previous two years.
• PAN card and income tax return of the business.
• Any other document as required by the bank or NBFC.

Collateral for MSME Loans 

MSME loans offered by banks or NBFCs can be secured or unsecured business loans. However, most lenders provide unsecured business loans, also known as collateral-free loans. The requirement for giving collateral depends on the loan schemes selected by the borrower. In the case of collateral-free loans, borrowers are not required to submit security/collateral to the banks/NBFCs to obtain the loan amount.

MSME Loan Scheme

Each bank has various loan schemes for businesses. Borrowers can visit the bank’s website and view the various MSME loan schemes offered by them. Apart from the MSME loan scheme offered by the banks, the government also offers MSME loan schemes through various banks/NBFCs. Some of the MSME schemes offered by banks or financial institutions initiated by the government are as follows:

• Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE).
• Credit Linked Capital Subsidy Scheme (CLCSS).
• Credit Guarantee Scheme for Subordinate Debt (CGSSD).
• MUDRA Yojana under PMMY.
• National Small Industries Corporation (NSIC) Subsidy.
• Prime Minister Employment Generation Programme (PMEGP).
• Prime Minister’s Rozgar Yojana (PMRY).
• PSB loans in 59 minutes.
• Standup India.
• Startup India.
• Equity Infusion for MSMEs through Fund of Funds.
• SIDBI Make In India Loan For Enterprises (SMILE).

MSMEs are micro, small and medium enterprises having investments of less than Rs.50 crore and an annual turnover of less than Rs.250 crore. The financial institutions offer many loan schemes for businesses and MSMEs at low-interest rates to help them get funds quickly and grow their business.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice. It should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.