Micro, Small, and Medium Enterprises (MSMEs) are recognized as integral contributors to the Indian economy. These enterprises function on less capital and generate more output. Amid rapid modernization across the country, various MSMEs are cropping up each day, especially in rural and semi-urban areas.
In response to this, the government has launched various schemes and programs for the development of MSMEs. As these enterprises are carving a niche for themselves in the Indian retail sector, lending institutions are also offering SME business loans to support them financially.
Business Loans for MSMEs are unsecured financial products that can be used for covering expansion-related expenses of a particular enterprise. These loans are offered at low interest rates with flexible repayment tenures. However, Business Loan rates differ from lender to lender. Read on to find out more about different types of loans for MSMEs.
Earlier, MSMEs were classified on based on investment and the nature of the business (manufacturing and services). As per the revised definition of MSMEs announced in May 2020, the investment limit of MSMEs has increased and an additional criterion of turnover has been introduced.
Now, a micro firm is one with an investment of up to ₹1 Crore and turnover of up to ₹5 Crores. For small firms, the investment is capped at ₹10 Crores, and turnover is up to ₹50 Crores. Lastly, medium enterprises are those with investments of up to ₹20 Crores and turnover of up to ₹100 Crores.
|Micro||<₹1 Crore||<₹5 Crore|
|Small||<₹10 Crore||<₹50 Crore|
|Medium||<₹20 Crore||<₹100 Crore|
Types of financing available for MSMEs
Different financing options are available to offer financial support to MSMEs. Some of these loans are:
- Business Loans for MSMEs: These loans are unsecured and can be used for the expansion of your business. MSME Business Loans are an ideal choice for working capital infusion, raw material procurement, maintaining inventory, hiring staff, and upgrading machinery. You can apply for these loans online at attractive Business Loan rates.
- Business Loans for Working Capital: Working capital is essential for running day-to-day operations in every type of enterprise. It is important to maintain the working capital ratio for the optimal functioning of a firm. In case you find yourself short of working capital, you can apply for an MSME Business Loan, also known as Business Loan for Working Capital.
- Business Loan for Sole Proprietorship: These loans are offered to sole proprietors such as small traders, Kirana store owners, travel agents, medical stores, artisans, etc. These are suitable for small business owners and can be used to fulfil working capital requirements, maintain stock and inventory, and for business expansion. Sole proprietors can avail of funds from Non-Banking Financial Companies (NBFCs) at low Business Loan rates.
MSME Business Loan Eligibility
- Age- The borrower must be between 22 and 65 years old.
- Business vintage- The borrower must have a business vintage of at least 2 years.
- Annual turnover- The borrower’s business should have a minimum annual turnover of ₹9 Lakh.
Documents required for MSME Business Loan
- KYC documents:
- Company PAN card, Director/ Proprietor/ Partner PAN Card, Aadhaar Card, Passport.
- Proprietor/ Partner/ Director PAN Card, Aadhaar Card, Electricity bill, Rent agreement/ Passport
- Personal documents- All individuals/ Partners/ Director- PAN, officially valid documents, and proof of address
- Business documents- Business registration proof + Business address proof (if not the same as business registration proof)
- Business address proof:
- Utility bills/ Rent agreement
- Financial documents:
- Bank account statement for the last 6 months
Business Loans for MSMEs are suitable for small business owners and entrepreneurs as they are collateral-free credit instruments. These loans can be used for a wide range of business-related purposes. These include infusing working capital, hiring trained staff, investing in branding and advertisement, and covering short and long-term expenses.
If you have a high credit score, you will be able to avail of these loans at attractive Business Loan rates. You can also use an online Business Loan EMI calculator to calculate your monthly payments against the loan amount and tenure. Further, you can apply for an MSME Business Loan through an online application from the comfort of your home or office.