The Indian economy thrives through the means of enterprise creation as one of the prime movers of the economy. In this direction, “Make in India and Made in India” movement is integral to entrepreneurship development across the country. Therefore, Micro, Small and Medium Enterprises (MSMEs) play a vital role for strengthening the Indian economy. MSMEs have been contributing to spreading entrepreneurial culture through business innovations. The Micro, Small and Medium Enterprises (MSMEs) need funding to establish and grow. The Government of India has taken many steps and launched many schemes to provide credit to MSMEs. MSMEs contribute significantly to our country for building a strong economy. One of the key aspects of MSMEs is access to credit. MSMEs require credit or funding to establish the business or the expansion of the business. MSME loan for new business and existing Business or enterprise is a type of credit facility in the form of a Term Loan (short-term/intermediate-term/long-term), Working Capital Loan, Overdraft, Cash Credit, Letter of Credit, Bill Discounting, and other loan products.
Who is eligible to get an MSME loan?
Individuals who may be a self-employed professional or self-employed non-professional with new business as MSMEs, existing business owners, entrepreneurs who are running sole proprietorships or private and public limited companies or partnership firms and limited liability partnerships (LLPs), and other business entities engaged in the manufacturing, trading and service sectors are eligible to get MSME loans.
Micro, Small, and Medium Enterprise (MSME) loans are offered by numerous financial institutions, including scheduled public sector and private sector Banks or NBFCs, Regional Rural Banks (RRBs), Small Finance Banks (SFBs), Micro Finance Institutions (MFIs), etc.
What are the purposes, features, eligibility parameters & Loan Schemes under MSME loans?
Needless to mention that the contribution of MSME is 8 percent of GDP, 45 percent of manufacturing output and 40 percent of exports of the country and uniquely they are least investment driven with high returns.
Employment creation is next to agriculture, the MSME sector has potential of tapping individuals to associate with economic activities by way of self-employment. So the major purpose and the priorities of the Government of India is the inclusive concept in enterprise creation.
In this Endeavour, this compilation of MSME loans for new business as well as for existing businesses would benefit all those entrepreneurs, including first generation, women, scheduled tribes, scheduled castes, handicapped, ex-servicemen, marginalized communities, etc., for enabling them in creating big enterprises.
Purpose of MSME Loans
MSME Loan for new business and existing businesses are offered by financial institutions can be used for the following business-related purposes:
- To start a new business or company or expand the existing enterprises
- Purchase of Plant & Machinery, such as testing or lab equipment/machines, electrical appliances, furniture, spare parts, etc.
- Construction of building spaces, or acquisition of land/factory or commercial properties
- Launch of new product range, or paying the suppliers in form of Bill Discounting
- Meet working capital requirements like paying salaries, purchase of goods and raw materials, stocking up inventory, marketing and advertising purposes, etc.
- Buying new or pre-owned machinery/equipment or a fleet of vehicles
- Any additional funding assistance for business-related purposes
The important features of MSME loan are many and these are used for starting a new business, business expansion purposes, meeting working capital requirements for enhancing cash flow by meeting the regular operating expenses like purchasing raw materials, goods, or stock, buying or upgrading equipment or machinery, paying off rent or salary, hiring, and training staff, etc.
Features of MSME Loans:
- Rate of Interest- Depending on the applicant’s profile and business requirements
- Amount of loan- No Minimum Limit to borrow & Maximum of up to Rs. 5 crores (Unsecured Business Loan), which can exceed as per business requirements
- Repayment tenure- From 12 months to 15 years, may exceed, as per the business requirements
- Collateral Security- Not required for unsecured business loans
- Processing Fee- Nil to 4% of the sanctioned loan amount
- Foreclosure Charges- From Nil to 5% of the outstanding principal amount
- Part-payment Charges- From Nil to 4% of the outstanding principal amount
- Subsidy- Offered as per the applicability of Government schemes
- Credit Facilities- Working Capital Loan, Bill discounting, Overdraft, Term Loan, Cash Credit, Letter of Credit, Bill of Purchase, Merchant Cash Advance, Loans under Govt. Schemes, etc.
Eligibility Parameters:
- Minimum age to apply for MSME loans for new business should be 21 years at time of loan application & maximum age limit is 65 years at time of loan maturity.
- Minimum business vintage period has to be 1 year.
- Annual Business Turnover should be as defined by the lender bank and may vary from one bank to another.
- Good repayment history with financial stability are very important for successful loan applications.
- No previous loan default with any financial institution will be accepted.
- Decent credit score and creditworthiness of the applicant shall be considered by lender banks.
What are the MSME Loan Schemes initiated by the Government of India?
MSME loans schemes initiated under the Ministry of MSME (MoMSME) are offered to Micro, Small, and Medium Enterprises (MSMEs) by various Banks. Popular MSME loan for new business and existing business under various schemes offered by financial institutions and initiated by the Indian Government are below mentioned:
- CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
- CLCSS: Credit Linked Capital Subsidy Scheme
- CGSSD: Credit Guarantee Scheme for Subordinate Debt
- MUDRA(Micro Units Development and Refinance Agency Limited) loans under PMMY.
National Small Industries Corporation (NSIC) Subsidy
- PMEGP: The Prime Minister Employment Generation Programme
- PMRY: Prime Minister’s Rozgar Yojana
- PSB Loans in 59 minutes under SIDBI
- Stand up India
- Start up India
The Ministry of MSME has been consistently enunciating policies resulting in enabling schemes and programmes for enhancing competitiveness of MSME enterprises. New initiatives of the ministry and market driven economy give rise to increasing product portfolio.
Various ministries extend support in the areas of skill development programmes, market development assistance, technology support, credit flow, public procurement policies, participation in exhibitions both within the country and overseas, etc.
How much credit score is considered as decent for MSME loans?
Credit Score of an individual person is a three digit number ranging from 300 to 900 which is generated by the authorised credit bureaus like CIBIL, Part of Transunion, Equifax, Experian and Criff High Mark registered under Reserve bank Of India that summarise the credit history and repayment track record of all the individuals and evaluate the creditworthiness of a loan applicant.
Credit score that is more than 750 is usually considered good, but still, one can apply for an MSME loan from banks, if even the credit score is 650 or above.
In case of MSME loans the company credit score like CMR (CIBIL MSME RANK) is also checked parallel.
It ranges from 1 to 10 and the most preferred rank for MSME loans is between 1 to 5 by the bank. But there are instances where CMR 6 are also considered but depends upon the lender bank.
Maintaining a good credit score always helps in loan approval and makes sure that the business requirements are met in time, irrespective of the size, type, volume, tenure, or nature of your business or enterprise.
Individuals, Self-employed professionals, new businesses like Startups, Small and Medium Enterprises (SMEs), and Large enterprises should maintain a good individual credit score of 750 and CMR rank of above 5 to get loans at low-interest rates with added benefits.
What are the documents required to apply for an MSME loan for a new business?
Documents required to apply for MSME loan for new business and existing businesses.
- KYC documents of the proprietor or partners or directors in the form of Pan Card, Passport, Aadhar card, Voter’s ID card, Driving License and Utility Bills such as Telephone, Electricity Bills or Property Tax Receipts for residential ownership proof.
- Proof of belonging to SC or ST or OBC category, if applicable.
- Any other document required by the lender financial institution.
- Business registration proofs such as trade licences, Udyam Aadhaar Registration Certificate, Professional tax Certificate and other business-related documents as per the applicability depending upon the profile of the business for which the MSME loan is applied.
- Income proof like Income Tax Returns with audited financials and audit reports as per the applicability along with GST Registration Certificate and GST Returns as per the applicability and all the business-related bank statements in case of the existing businesses.
- In case of secured MSME loan for new business and existing business the above documents are accompanied with the property documents like Title deed, chain deeds, sanctioned building plan, mutation certificate and updated property tax receipts along with the record of rights of the land on which the buildings are built along with latest land revenue tax receipt.
Does MSME Loan for new business or existing business come with or without Collateral Security?
MSME loans are both secured and unsecured business loans, however, most lenders offer unsecured business loans that are termed collateral-free loans. In the case of collateral-free loans, borrowers are not required to submit any collateral/security with the Bank/NBFC or any financial institution.
AMSME loans come with various features and benefits as mentioned below:
- Loan Type: Term Loan, Working Capital Loan, Overdraft, Cash Credit, POS Loans, Letter of Credit, etc.
- Collateral-free MSME loans of amounts up to Rs. 5 crores (Unsecured business loan)
- Collateral-free business loans are usually short-term loans that can be repaid within a minimum tenure of 12 months and a maximum of up to 5 years (shall exceed as per business requirements)
- Financial institutions, such as Private and Public Sector Banks, Non-Banking Financial Companies (NBFCs), Regional Rural Banks (RRBs), Co-operative Banks, Small Finance Banks (SFBs), and Micro Finance Institutions (MFIs) offer MSME loans at competitive interest rates
- Loan amount offered shall depend on the applicant’s profile, credit score, the credit rating of the company, repayment history, business tenure, nature/type of business, and financial stability.
What are the factors that may affect the Interest Rates of MSME Loans for new business and existing business?
The MSME loan interest rates offered by financial institutions are based on various factors as stated below:
- Applicant’s age, income, credit score, financial history or stability, creditworthiness, and repayment capability.
- Desired Loan amount and repayment tenure.
- Business vintage, annual turnover, and profitability.
- Company’s credit rating, nature or type or tenure or volume of business, etc.
How MSME loans are categorised among micro, small and medium enterprises?
The present categorisation method of MSME loan for new business and existing business has been introduced in the following manner where the distinction between the manufacturing and trading business with the services enterprises has been removed by making the investment amount and annual turnover similar for enterprises engaged in all the sectors.
MSME – Merged Criteria: Investment (Plant & Machinery or Equipment) and Annual Turnover
Conclusion:
Various Ministries and Department of Government of India have been running Schemes targeted towards MSME Sector. It has been a good initiative by our Ministry to have collated this information into a single compilation under NIMSME (National Institute for Micro, Small and Medium Enterprises) to empower people with detailed information. Unfortunately, people for whom certain types of information are disseminated are seldom able to locate such information.
Since most of the MSMEs enterprises are run essentially by the entrepreneur along with one or two close associates thus they remain unaware of much vital information related to the MSME loans for new business as well as for existing businesses unlike a large enterprise which may have a designated set of personnel to scout for available information continuously.
On this count also this compilation would serve a very useful purpose for all MSME entrepreneurs as they do not have that luxury to spend their business time to collate such information. On this count it will be very much useful for them to follow this compilation and appoint a renowned and trustworthy loan consultant like Naskar Financial Services who will be guiding them to a successful application and disbursement of MSME loans for new business as well for existing business.
