What is MSME (Micro, Small and Medium Enterprises) Loan?

MSME is the acronym for Micro, Small and Medium Enterprises. Over the past few decades, these small and medium-scale business enterprises have been a dominant force in the Indian entrepreneurial landscape. These enterprises use advanced technology and offer innovative solutions to the customers and are beating the industry giants.

 

According to financial experts, India's economic growth will greatly depend on the success of small and medium-scale businesses trying to stay afloat and thrive in the extremely competitive business market. As MSMEs are growing at an exponential rate, so are MSME loans.

 

In fact, as per the TransUnion CIBIL and SIDBI reports, the credit demands from MSMEs grew about 1.29 times year-on-year basis in 2022. And considering the promising future of MSMEs, many financial organisations, including banks, government agencies, NBFCs (non-banking financial companies) etc., offer MSME loans.

 

If you are planning to set up your small business enterprise and are not sure about MSME full form in banking and how to get the funds for your business, this guide is just for you.

 

What is an MSME Loan?

 

MSME loans are a type of credit offered by banks and non-banking financial companies. They are specifically designed to meet the financial needs of business enterprises in the MSME sector. As a small business owner, MSME loans allow you to get the funds you need to grow your business and have access to financing options that are available to large corporations.

 

As per the RBI (Reserve Bank of India) guidelines, you can apply for and avail of MSME loans only if your business entity falls under one of the following categories and meets the specific investment and annual turnover limits.

 

Business Category	Investment Limit	Annual Turnover Limit
Micro Business Enterprise	Less than Rs. 1 Crore	Less than Rs. 5 Crore
Small Business Enterprise	Less than Rs. 10 Crore	Less than Rs. 50 Crore
Medium Business Enterprise	Less than Rs. 20 Crore	Less than Rs. 100 Crore

 

Depending on the category that you fall under, you can avail of the MSME loan with any bank or an NBFC of your choice and get the amount credited to your current bank account.

 

Now that you know the MSME loan meaning, it would help to understand the different aspects of this type of business loan.

 

Purposes of MSME loan

 

As an MSME owner, you can apply for this loan to meet all kinds of business expenses. It could be –

 

• Buying a new machinery that could help you increase the production and/or make the production process more efficient
• Buying or stocking raw materials
• Increasing the working capital
• Setting up a new business arm of your existing business
• Paying the employees’ salaries or offering them an annual bonus
• Buying new business assets like vehicles, bigger office space, renting a warehouse
• Settling the existing debts or paying the dues to the supplier
• Any other purposes you deem necessary will prove beneficial for your business to help it grow further

 

Features and benefits of MSME Loan

 

Apart from helping you inject the necessary cash into the business, getting an MSME loan can have benefits, including –

 

• Availing a MSME loan allows you to maintain a good credit flow in the business and the MSME sector in general
• By getting an MSME loan, you can accomplish any goal that you have set for your business and even set a new benchmark for other businesses in your industry
• MSME loans give you access to hard cash that you need to upgrade the technology in your business to increase production and/or provide better quality services to the end customers
• When you get an MSME loan, you can be sure to keep your business operations running and stay competitive in the industry while focusing on how to grow the operations and take your business to the next level
• MSME loans are available for all kinds of MSMEs. Whether you own a sole proprietorship, a partnership company or a private limited organisation, you can get the funds you want
• Today, as most lenders in India offer 100% digital services, you can apply for an MSME loan online and get quick approval. Also, most of the lenders today have minimal documentation requirements, giving you a stress-free borrowing experience
• You can get an MSME loan without offering any collateral to the lender. This means you have zero risk of losing the ownership of your assets

 

MSME Loan Interest rate

 

Like any other form of credit, when you apply for an MSME Loan, the interest rate is one of the most critical aspects that you must consider, as it has a direct impact on the repayment capacity. Typically, when you apply for an MSME loan, the lender will review your application and decide the interest rate based on different factors like –

 

• Your business credibility and vintage, i.e., the number of years your business has been in operation
• The amount you want to borrow
• Your personal and business credit score
• Your business’ financial standing
• The repayment period you choose
• Lender-specific guidelines

 

If you have been running your business successfully for a few years, and your enterprise has a reputation in the industry that you are in, chances are high that you will get your loan application approved faster without facing any difficulties. Similarly, if you have maintained a high credit score, it would reflect your creditworthiness and the lender may approve the loan with favourable terms and conditions.

 

In general, the interest rate on MSME loans offered by lenders are quite affordable, and it starts from 8% per annum

 

Documents required for MSME Loan

 

One of the most significant reasons why many small and medium-scale business owners in India prefer applying for an MSME loan is that it does not involve complex paperwork. When you apply for an MSME with credible lenders like Udyog Plus, which is part of Aditya Birla Finance Limited, you only have to provide a few basic documents, including:

 

• PAN (Permanent Account Number) Card
• Aadhaar Card
• The current bank account statement for the last one year
• Proof of business ownership

 

Final Word

 

MSME loans are a big boon for all micro, small, and medium business enterprises. As a business owner, they allow you to get the funds you need without any hassles. The simple online application process, quick disbursal time, and minimal documentation make them the go-to financial option for all MSME owners.