MSME Loan

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MSME Loans also known as Micro, Small, and Medium Enterprise Loans are types of loans which you can avail if you own a business or is an entrepreneur. This type of loan provides you working capital which you can use for various purposes such as purchasing new inventory, buying new equipment, paying your staff their salary, or aid yourself in expanding your business. There are multiple lenders in India who offer MSME loans to their customers. The interest charged also differs from banks to banks.

MSME Loan Details

Interest Rate 7.65% p.a. onwards
Loan Amount Rs.50,000 onwards
Loan Tenure Up to 15 years
Processing Fee Subject to the lender

New definition of MSME

The definition of MSME was altered, and was announced by the Government of India on 13th May 2020. Given below is the new definition of MSME:

  • The criteria for MSME classification have been changed from Investment to Investment and Annual Turnover.
  • The Government of India also increased the investment limit for classification of MSME units. This means, that more firms and enterprises can now avail MSME schemes.
  • Criteria for the classification of MSMEs is now uniform for Manufacturing and Services Enterprises which is given below in the table below:
Classification Micro Small Medium
Manufacturing and Services Enterprises Investment does not exceed Rs.1 crore and Turnover does not exceed Rs.5 crore Investment does not exceed Rs.10 crore and Turnover does not exceed Rs.50 crore Investment does not exceed Rs.20 crore and Turnover does not exceed Rs.100 crore

Micro, Small, and Medium Enterprises can avail MSME loans for the expansion of businesses or for setting up new enterprises. The interest rates on MSME loans start at 7.65% p.a. The loan amount sanctioned ranges from as low as Rs.50,000 and can go up to a few crores. On the basis of the sanctioned loan amount, the loan repayment tenure can go up to 15 years.

MSME Loan Interest Rates by Top Banks in 2022

Bank Name Interest rate
Allahabad Bank At the discretion of the bank
Oriental Bank of Commerce 10.70% p.a. onwards
Andhra Bank At the discretion of the bank
ICICI Bank 13% p.a. onwards
Central Bank of India 11.25% p.a. onwards
Indian Bank 9.75% p.a. onwards
Punjab and Sind Bank 9.95% p.a. onwards
Punjab National Bank At the discretion of the bank
State Bank of India 7.65% p.a. onwards
Syndicate Bank At the discretion of the bank
UCO Bank 8.85% p.a. onwards
Union Bank of India At the discretion of the bank
United Bank of India 10.25% - 16.25% p.a.

Popular Banks offering MSME Loans in India

Listed below are some of the most popular banks in India which offer MSME loans:

SME Loans from SBI
Interest Rate 9.65% p.a. onwards
Processing Fee Up to 2% of the loan amount
Loan Amount Depending on the scheme
Loan Repayment Tenure Up to 120 months
SME Loans from HDFC Bank
Interest Rate 15.75% p.a. onwards
Processing Fee 0.99% of the loan amount
Loan Amount Up to Rs.50 lakh
Loan Repayment Tenure Up to 48 months
ICICI SME Loans
Interest Rate 13% p.a. onwards
Processing Fee Depending on the scheme
Loan Amount Up to Rs.2 crore
Loan Repayment Tenure Depending on the scheme

Top NBFCs Offering MSME Loans Interest Rates

There are various Non-Banking Financial Companies (NBFCs) in India who offer MSME Loans to its customers at attractive interest rates. Given below are some of the NBFCs from whom you can avail an MSME Loan.

Bank Name Interest rate
LendingKart At the discretion of the lender
Fullerton India 17% p.a. to 21% p.a.
Mahindra Finance At the discretion of the lender
Muthoot Fincorp At the discretion of the lender

Popular NBFCs offering MSME Loans in India

Listed below are some of the most popular NBFCs in India which offer MSME loans:

Fullerton Business 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 Depending on the scheme
Lendingkart Business Loan
Interest Rate At the discretion of the lender
Processing Fee 2% of the loan amount
Loan Amount Rs.50,000 to Rs.1 crore
Loan Repayment Tenure Up to 36 months

Other MSME Loan Schemes

In addition to the loan schemes offered by the banks and NBFCs, there are a host of government schemes as well. These schemes have been listed below:

Name of Scheme Sub-Schemes
1) MUDRA Loan
  • Micro-Credit Scheme
  • Credit for Micro Finance
  • Refinance Scheme for Banks
  • Mahila Uddyami Scheme
  • MUDRA Card
  • Equipment Finance Scheme
  • Credit Guarantee Scheme
2) Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE) N/A
3) Prime Minister’s Employment Generation Programme (PMEGP) N/A

MSME registration

Given below are the steps you will have to follow to register for MSME as a new user

  • Click on the link given https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm.
  • If you have not registered before, click on ‘New Entrepreneurs who are not Registered yet as MSME or those with EM-II'.
  • You will have to provide your name and Aadhaar details and click on ‘Validate and Generate OTP’. A One-Time Password (OTP) will be sent to your mobile number. Enter the OTP to authenticate. You will then have to provide the details of your PAN, organisation you are a part of and validate it.
  • In the next step, provide your personal details and the details of the industry or plant you are a part of.
  • After entering all the details, click on ‘Submit and Get Final OTP’. An OTP will be sent to your mobile number. Enter the OTP following which you will receive a message for the successful registration of MSME.

Registration For Entrepreneurs Already Having UAM

  • If you have already registered as an UAM then you will have to click on the link https://udyamregistration.gov.in/Government-India/Ministry-MSME-registration.htm.
  • Click on either ‘For those having registration as UAM’ or ‘For those already having registration as UAM through Assisted filing’.
  • Enter your Aadhaar number.You can choose to receive the OTP either on your registered mobile number or email ID.
  • Once you have provided the OTP, click on and ‘Validate and Generate OTP’.
  • Enter the OTP and your registration process will be completed.

What are the eligibility criteria for availing a MSME Loan?

You’re required to fulfil the eligibility criteria set by your lender to get approved for an MSME loan. The requirements will vary from bank to bank, and even changes with the type of scheme offered. However, listed below are the general criteria you will have to meet:

Particulars Criteria
Type of business
  • Manufacturing Sector
  • Service Sector
Size of business (in terms of investment) - Manufacturing Sector
  • Micro - < Rs.25 lakh
  • Small - < Rs.5 crore
  • Medium - < Rs.10 crore
Size of business (in terms of investment) - Service Sector
  • Micro - < Rs.10 lakh
  • Small - < Rs.2 crore
  • Medium - < Rs.5 crore

What are documents required to apply for a MSME Loan?

Listed below is a generic list of documents that you can keep in hand for your application:

Particulars Document Required
Proof of Identity PAN card, Aadhaar card, Voter’s ID, passport
Proof of Residence Rental agreement, ration card, utility bills
Proof of Business Address Rental agreement, lease agreement, utility bills
Proof of Income P/L account and balance sheet copies of last 2 years
Tax documents IT returns, sales tax return, PAN card,
Proof of securities provided Photocopies of title deeds/lease deeds offered as securities
Other documents Projected balance sheet, project report, etc.

Note: The list of documents mentioned above is indicative only. Applicants might be required to provide other documents as well as per the requirement of the lender.

How to apply MSME Loan?

There are two ways of sending in your application for an MSME loan. If the lender has an online facility, you can fill the form with the required details and submit the application via the website.

Alternatively, you can visit the nearest branch and request them for an application form. You can call ahead and ask them what the documentation requirements are.

Collateral for MSME Loan

Most of the lenders in India will offer you an MSME loan without you having to provide any collateral or security. MSME loans are considered unsecured loans for which collateral is not required. However, in case any lender does ask for a collateral, do get in touch with them and ask for the details of the security you may need to provide.

MSME Loans FAQs

  1. What is priority sector lending and does it include the MSME sector?

    Lending to the priority sectors, which are sectors that impact large segments of the population, are employment-intensive, and are weaker sections, is known as priority sector lending. The MSME sector falls under the priority sector and hence, can avail the benefits of priority sector lending. Some of the other sectors that can enjoy priority sector lending are education, housing, agriculture, and the export sector.

  2. Do all banks offer MSME loans?

    All private and public sector banks in India have targets prescribed by the Reserve Bank of India (RBI) for lending to the MSE sector. Under these guidelines, domestic scheduled commercial banks (except small finance banks and regional rural banks) and foreign banks with more than 20 branches will allocate 7.5% of their Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet exposure, to the microenterprises sector.

  3. Do MSME borrowers need to have a credit rating?

    Though it is not a mandate for the MSME borrowers to have a credit rating, getting it done will aid in credit pricing which may help them to get better interest rates, lower processing charges, etc.

  4. Is it possible to get MSME loans without providing collateral?

    As per the RBI regulations, banks have been mandated to offer MSME loans of up to Rs.10 lakh without accepting collateral. Sometimes, depending on the financial position and track record of the MSME units, banks can increase this limit to Rs.25 lakh.

  5. What happens if I fail to make the payment for my MSME loan on time?

    In cases where the buyer is unable to pay the supplier, he/she shall be liable to pay compound interest with monthly rests to the supplier on the amount from the appointed day or on the agreed day, at 3 times the bank rate notified by the RBI.

  6. Are there any guidelines laid down by the RBI regarding interest rates on MSME loans?

    Yes, RBI has advised all banks to price the interest rates on MSME loans only with reference to the base rate to enhance transparency in lending rates.

  7. Does the government of India offer any other support to the MSME sector besides offering loans?

    Apart from offering loans to the MSME sector, the Ministry of MSME extends support for the promotion of Information and Communication Touls (ICT), cluster development, skill development, improvement of manufacturing competitiveness, improvement of quality of products, etc. The Ministry also provides market support to the sector through the Marketing Assistance Scheme.

  8. Do all branches of public sector banks offer MSME loans or are there any specialised branches?

    The RBI has directed all public sector banks to open at least one specialised branch in each district for lending to the MSME sector. At present, there are 2,032 such branches.

  9. I am an MSE entrepreneur. Will banks extend any guidance to me besides offering me a loan?

    Yes, entrepreneurs in the MSME sector can avail the fullowing services offered by banks:

    • Financial literacy and consultancy support
    • Rural Self Employment Training Institutes (RSEITs)
  10. What is the Stand Up India scheme?

    This scheme offers financial assistance to women entrepreneurs and individuals from the SC/ST caste. The finances can be used to set up greenfield projects. It can be applied for first-time ventures in industries like trading, manufacturing, and service.

  11. How do I check my business’ CIBIL score?

    You can visit CIBIL’s official website and request for your credit report. You can get up to 1 free credit rating check every year.

    Alternatively, you can also go to the bureau and apply for a credit report via post. However, do note, you will be required to furnish certain documents. You will receive your report only after these documents are verified and authenticated.

News About MSME Loan

  • MAS Financial Enters a Strategic Partnership with Bank of Maharashtra for MSME Loan

    On Tuesday, 28 December 2021, MAS Financial Services announced its co-strategic partnership with Bank of Maharashtra. This partnership is done in order to lend money to micro, small, and medium enterprises (MSME). Using its strong footprint across India, MAS Financial will be able to widen its client base and increase credit flow to the huge unserved and underserved regions as a result of this co-lending partnership. The NBFC further stated that the business arrangement will gradually expand, with more products being provided to assist the MSME market.

    29 December 2021

  • Government sanctions collateral-free loans

    As on 12 November 2021, collateral-free loan worth Rs. 2.82 lakh crore have been sanctioned for Micro, Small and Medium Enterprises (MSMEs), said Rane. The Centre also plans to clear MSME dues within 45 days through government agencies, added Rane.
    Under the Prime Minister's Employment Generation Programme (PMEGP), around 2.90 lakh jobs were generated in MSMEs, in the year 2021-22.

    01 December 2021

  • SBI and U GRO Capital to Finance MSME Together

    U GRO Capital, a listed MSME fintech platform entered a co-lending partnership with State Bank of India (SBI) with a goal to provide credit to the micro, small, and medium enterprises (MSME). With this collaboration, SBI and U GRO Capital are aiming to disburse almost Rs.500 crore by March 2022. The agreement was signed in accordance with the Reserve Bank of India’s updated co-lending standards, which include a back-to-back takeover of the bank’s part in the loan after disbursement.

    23 November 2021

  • Loans to MSMEs increase by 2.5 times in Uttar Pradesh

    The loans disbursed to Micro, Small & Medium Enterprises (MSMEs) have increased by 2.5 times in the last 4.5 years in Uttar Pradesh. In the year 2016-17, loans disbursed to MSMEs amounted to Rs.28,136 crore, which has risen to Rs.73,765 crore in 2020-21.
    UP stands first in installing MSME units in India. UP has over 90 lakh units, accounting for 14.2% of the total units established in the country. Investors can avoid inspection from departments for 1,000 days if they provide an acknowledge certificate within 72 hours.

    15 November 2021

  • 100% credit facility offered by DFC, Mastercard, and HDFC Bank to women entrepreneurs

    On 21 October 2021, USAID, DFC, Mastercard, and HDFC Bank launched a $100 million credit facility that will help small businesses in India. The facility will help the business’ digitisation needs and help them recover from the impact that has been caused by COVID. The credit facility will be available only to women entrepreneurs and small business owners who are new to credit. As per the partnership, HDFC Bank will reach out to more than its current customer base and will make at 50% of the credit facility that is available to new small business owners.

    26 October 2021

  • MSMEs disbursed nearly 100% of sanctioned loan amount in H1 FY22, shows govt data

    Government data showed public and private lenders, small finance banks, non-banking financial companies, and other lending institutions under the Mudra loans scheme disbursed 95% of the amount sanctioned over the first half of the financial year 2021-22.

    For the scheme Pradhan Mantri Mudra Yojana (PMMY), launched by Prime Minister Narendra Modi in 2015, the disbursement rate for the first quarter of FY22 was recorded to be at 87% of the sanctioned amount.

    Of the total Rs.1.13 lakh crore involved in 2.03 crore loans disbursed, Rs.1.07 lakh crore loans were sanctioned from 1 April to 8 October, according to the data provided by the Government of India.

    18 October 2021

  • MAS Financial enters into strategic co-lending partnership with Bank of India for MSME sector

    In a bid to lend to micro, small and medium enterprises (MSME), MAS Financial Services has entered into a strategic co-lending partnership with Bank of India (BoI). The partnership will help MAS Financial Services to broaden its client base and expand the credit flow to the untapped markets using its footprint across pan India. The business under this arrangement will scale up steadily and more enabling products will be introduced to serve the MSME segment. Following the announcement of the partnership, the shares of Bank of India and MAS Financial Services gained 1.04 and 1.07 percent respectively.

    8 September 2021

  • MoU signed between HDFC Bank and NSIC to offer credit support to MSMEs

    HDFC Bank has signed a memorandum of understanding (MoU) with National Small Industries Corporation (NSIC) to offer credit support to micro, small and medium enterprises (MSMEs). It was announced through a statement released by the bank on Tuesday. As per the arrangement, HDFC Bank will provide MSMEs with set of specially tailored schemes to enhance their competitiveness. It will also accept loan applications forwarded by NSIC and consider sanctioning loans as per its lending norms and on merit basis. The lender was hopeful that the development will help expedite the growth of MSME Sector which is the backbone of the country both in terms of economic development and job creation.

    7 September 2021

MSME Loan Schemes

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