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 2023
| Bank Name | Interest rate |
|---|---|
| Oriental Bank of Commerce | 10.70% 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 | 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 |
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 | 1%-2% per month |
| Fullerton India | 11.99% onwards |
| 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 | 11.99% p.a. onwards |
| Processing Fee | Contact the lender for more details |
| Loan Amount | Up to Rs.50 lakh |
| Loan Repayment Tenure | Depending on the scheme |
| Lendingkart Business Loan | |
| Interest Rate | 1%-2% per month |
| Processing Fee | Contact the lender for more details |
| Loan Amount | Rs.50,000 to Rs.2 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 |
|
| 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 |
|
| Size of business (in terms of investment) - Manufacturing Sector |
|
| Size of business (in terms of investment) - Service Sector |
|
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.
FAQs on MSME Loans
- What is priority sector lending and does it include the MSME sector?
- Do all banks offer MSME loans?
- Do MSME borrowers need to have a credit rating?
- Is it possible to get MSME loans without providing collateral?
- What happens if I fail to make the payment for my MSME loan on time?
- Are there any guidelines laid down by the RBI regarding interest rates on MSME loans?
- Does the government of India offer any other support to the MSME sector besides offering loans?
- Do all branches of public sector banks offer MSME loans or are there any specialised branches?
- I am an MSE entrepreneur. Will banks extend any guidance to me besides offering me a loan?
- Financial literacy and consultancy support
- Rural Self Employment Training Institutes (RSEITs)
- What is the Stand Up India scheme?
- How do I check my business’ CIBIL score?
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.
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.
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.
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.
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.
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.
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.
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.
Yes, entrepreneurs in the MSME sector can avail the f0llowing services offered by banks:
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.
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.
