Having adequate funds to manage business operations plays a crucial role in the success of any business. New small and medium-sized enterprises often face a cash crunch, resulting in sub-optimal performance and output. Most new small-scale businesses are bootstrapped, and funding is a significant challenge.
A business loan can offer the required liquidity to manage different business activities. Different types of business loans cater to the needs of different businesses. The Micro Small & Medium Enterprises (MSME) Loan is a Business Loan that is specially designed to help small and medium-sized enterprises obtain the required financing. Read on to learn more about MSME loans its eligibility criteria, features, and the process to apply for it.
Understanding MSMEs and MSME Business Loans:
MSME stands for Micro Small & Medium Enterprises. It is used to classify businesses of different sizes based on the investment capital, turnover, and workforce. You will be surprised to learn that MSMEs contribute almost 8% to India’s GDP and produce around 45% of the total manufacturing output. Hence, the MSMEs business in India plays a crucial role in its economic growth and development. This categorization has been made to support small and medium-sized enterprises.
As per the latest amendments in the MSME Act, the investment for ‘micro’ category businesses shouldn’t be more than INR 1 crore, and the annual turnover should be under INR 5 crore. For businesses categorized as ‘small’, the investment capital should be less than INR 10 crore, and the turnover should not be more than INR 50 crore. Similarly, for ‘medium’ businesses, the investment capital should be less than INR 20 crore, and the turnover should be less than INR 100 crore.
Since MSMEs are the backbone of the Indian economy, the government offers numerous benefits to grow and develop businesses. They are provided loans under the priority sector lending scheme at lucrative rates and flexible terms. The MSME loan scheme was introduced in 2018 to provide financial aid to micro, small, and medium category businesses. One of the main characteristic features of this loan is it gets processed in under 60 minutes. Businesses can take up to INR 1 crore loan through this scheme. The base interest rate for these loans stands at 8.5 percent per annum.
MSME Loan schemes
Before we jump into the steps to apply for an MSME loan for new business, let’s dig deeper into some of the prominent MSME loan schemes available for business owners.
- CGTMSE
Founded in 2000, the Credit Guarantee Funds Trust for Micro & Small Enterprises is a government-backed trust fund offering cash to micro and small business owners. It is an excellent scheme for new business owners with little to no experience setting up and running a business.
- CLCSS
CLCSS is the abbreviation for Credit Linked Capital Subsidy Scheme, a government subsidy initiative to help businesses in the MSME sector. It allows enterprises to purchase quality machines without worrying about the financial burden. This revolutionary scheme was initiated to help MSME businesses benefit from the latest technology. Over 15% subsidy on purchasing plant & machinery can be availed using this scheme.
MSME loans eligibility and application
Now that we have a fair idea of what MSME loans entail, let’s take a quick look into the eligibility criteria and application process.
- Eligibility criteria
As per the general eligibility criteria for MSME loans, the loan applicant (business owner) must be 25 to 55 years old. The business venture must be older than three years. The business should be able to show the Income Tax Return (ITR) documents for at least one year. The credit score of the applicant must be greater than 750 points. There shouldn’t be a historical loan default record either in the business’s or the applicant’s name. Checking the EMIs using a business loan EMI calculator is also recommended.
- Documentation requirements
It is essential to check the loan eligibility before proceeding with the documentation needs. For availing of an MSME loan, you must possess the essential KYC documents, including an Aadhaar card, PAN card, voter’s ID/driving license, or other government-approved documents. In addition, you must have address proof in the form of either electricity bill, rent agreement, passport, Aadhaar card, etc. Proof of the financial operations of the company is also needed. You can submit a copy of your GST return and bank account statement for the same. Finally, you must show the business registration documents as proof of ownership.
- Application process
To fill out and submit the application for MSME loans, you must visit the Udyami Mitra website, an online portal for loan applications. The next step is filling out the application form, and providing the required documents to get loan approval. Then, the loan application and documents will be evaluated as per the internal guidelines, and a final decision will be made.
