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MSME Loans- User Manual to Control Dilution

Created on 08 Aug 2022

Wraps up in 5 Min

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Updated on 11 Sep 2022

In today's highly competitive era, manufacturing is becoming an increasingly important sector in India. The country is striving hard to be the global manufacturing hub. To help India scale the great heights, the MSMEs are contributing significantly. However, manufacturing is not an easy feat as it requires a lot of funding. Manufacturing loans are one of the best ways to meet the rising demands of MSMEs. Government offers MSME loans to help cash-strapped businesses get on track. The Indian government plans to make a total contribution to MSME switch from 29% of GDP to 50% by the end of 2024. The MSME loans are an efficient solution to raise funds for initial setup, new equipment, and other regular operational demands. Keep reading to learn more about the features, schemes, and eligibility criteria of MSME loans. 

List of top MSME loan schemes in India

Many MSMEs (Micro, Small and Medium Enterprises) need extra funds to establish and grow in the competitive market. The government of India is taking many steps and is offering financial help to such businesses via MSMEs loan schemes. Many financial institutions and banking sectors are developing different MSME loans to support such business owners. Below is the list of top MSME loan schemes in India one can apply for. 

1. Pradhan Mantri Mudra Yojana (PMMY)

On the 8th of April, 2015, the Prime minister of India launched this scheme. Mudra (Micro Units Development and Refinance Agency Limited) is a non-banking financial company that offers up to ₹10 lakh loans to develop MSMEs. Borrowers looking for loans can approach NBFCs, Small finance banks, Commercial banks, and MFIs. As per the scheme rules, the MSME can avail of different loan amounts according to their business growth. The three sub-categories loans MSME owners can apply for under the PMMY scheme include:

  • ₹50,000 under Shishu 
  • ₹50,000 - ₹5 Lakh under Kishore
  • ₹5 Lakh - ₹10 Lakh under Tarun

2. CGT MSE (Credit Guarantee Trust Fund for Micro & Small Enterprises) 

Another scheme established for MSME is Credit Guarantee Trust Fund for Micro & Small Enterprises. SIDBI and the Ministry of MSME launched the scheme to lend financial help to small and medium-sized industries. The scheme's added advantage is that no collateral or third-party guarantee is required. New and existing enterprises can apply for the scheme and get loan amounts accordingly. MSME can get 50%, 75%, 80% and even 85%. The sanctioned loan amount can be extended up to ₹200 Lakh.

3. Credit Linked Capital Subsidy Scheme (CLCSS)

If an MSME is looking for technology up-gradation, they can avail themselves of the Credit Linked Capital Subsidy Scheme (CLCSS) benefits. Participants can avail of up to 15% capital subsidy on loans up to ₹1 crore for acquiring or setting up upgraded machinery. Though all the MSMEs are eligible for the loan, business owners looking to replace the existing units are excluded. One can reach out to financial institutions for more information about the funding scheme. 

4. Funds Of Funds 

Every MSME owner has had to face hardship and a shortage of equity. This is where the funds of funds come into the picture. This scheme pays extra attention to equity infusion for the MSMEs. The scheme will offer the owners the right amount and financial assistance to help them grow in the competition. With funds of funds, the government of India is encouraging the private sector’s investment in MSME and helping them with nearly ₹50,000 Crore. 

Different MSME loan interest rates are different and depend highly on the financial institution or bank chosen. One must check out the interest rate and the other benefits before applying. 

The MSME sector is growing by leaps and bounds and is known as the second largest employment provider, followed by agriculture. 

Key features of the MSME loan scheme

There are different MSME loan schemes available that a business owner can take to grow their business. Below listed are the most common features of the loans available. 

  • The interest rate of the MSME loan scheme will depend on the applicant's profile, along with their business needs and requirements. 

  • Applicants can borrow up to ₹2 Crore, which can increase as per the needs and requirements of the business.

  • Repayment tenure will vary from 1 year to 5 years, so the applicants can choose the MSME loan that fits their needs. 

  • No collateral or security is required when taking up an unsecured business loan. 

  • Depending on the sanctioned loan, processing fees are charged from 0-4%. 

  • Foreclosure charges vary from 0-5% based on the due principal amount. 

Eligibility criteria for applying MSMEs loans

Not every applicant or business owner is eligible to apply for the MSMEs loan. 

  • Applicant must have a credit score of 750 or more.

  • The business vintage (minimum) must be of 1 year.

  • For existing enterprises, the business turnover needs to be ₹12 lakh.

  • The candidate must be financially stable and must have a good repayment history.

  • There must be no previous loan default of the candidate with any other financial institution.

MSMEs, women entrepreneurs, individuals, business owners, self-employed professionals and people belonging to OBC, ST, and SC categories can leverage the perks of loans. 

Documents required for taking up MSME loans 

Here are the essential documents required to apply for an MSME loan. 

  • Identity proof such as Voter's ID, Aadhar card, passport, PAN card, etc 

  • Residential proof such as ration card, utility bills, rental agreement, etc 

  • Income proof such as P/L amount and the 2-year balance sheet copy 

  • Tax documents such as sales tax returns, IT returns, PAN cards, etc 

  • A project report or projected balance sheet might also be required

The Bottom Line

Undoubtedly, MSME loans are one of the best ways to help the manufacturing sector grow and establish itself. However, with many choices and schemes available, it can be hard to choose the one that fits one's needs exactly. To overcome the challenges and choose a suitable MSME loan scheme, all one needs to do is check out its features, funding criteria, application criteria, and more. It is one of the surefire ways to apply for the right scheme and the proper funding. If one is looking to choose a bank that offers MSME loans without collateral, they can apply at the State Bank of India, Small Finance Banks (SFBs), HDFC Bank, ICICI Bank, and Regional Rural Banks (RRBs), Axis Bank, NBFCs, and Micro Finance Institutions. 

This article provides in-depth knowledge about the MSME loan scheme. However, if any readers want to ask questions or know more, they can drop them in the comment section below.

An Article By -

Deb P Samaddar

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Deb is a keen learner and eager to learn about the finance world. He is that person who would never stop talking, but my oh my, the words he uses, are not something a normal human would in a regular conversation. While the conversations are well, interesting, the write-ups are faultless. With an increased proclivity towards tech and language, he aims to capitalise on his interests as a content writer at Finology.

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