MSME Loans in India: Eligibility and Documents Requirement

The Govt. of India provides financial help to the MSME’s to promote their development, improve sales and their business in the market. Several private banks also provide collateral free loans with less paperwork and processing time.

Banks usually address THIS loan as SME loan which at times, may involve some collateral. There are a number of factors which decide the approval of your MSME loan like return on investment, profitability, capacity to repay loan and contribution of the promoters.

Eligibility for MSME Loans

To apply for an SME Loan you must fulfill these requirements –

  • You must be an Indian resident between 25 to 66 years of age.
  • You must be in business for at least 3 years.
  • Minimum turnover of around Rs. 25 Lakh.
  • Fulfill the credit evaluation process (different in each bank’s case).
  • Business Registration as Sole Proprietorship, Partnership Firms, Private Limited etc.

The entity must also deal in manufacturing or service-based sector excluding retail traders, educational/training institutes and agriculture.

Documents Required for Loan

Before initiating the loan process the applicant must present complete documents along with the application. At times, there are few other documents required according to the type of business registration.

  • Identity Proof of the applicant with two passport size photographs.
  • Business Address Proof
  • Know your Customer Details like business registration proof, AOA (Articles of Association) or Partnership Deed. 
  • Quotation of the plant or machinery to be purchased.
  • Audited financials of the company which includes a balance sheet, profit and loss statement, tax audits and returns.
  • Current year performance and projected turnover.
  • Latest Bank Statements.
Note: All the above documents must be self-attested by the applicant.  

Types of MSME Loans in India  

There are a number of loans introduced in India in the past few years to provide credit to small businesses. The Small Industries Development Bank of India (SIDBI) offer long-term loans to the MSME’s without the need of going to any bank.

Here are some of the popular Government Schemes which provide business loans to MSME in India.

1. 4E (End to End Energy Efficiency)

This scheme is launched jointly by India SME Technology Services Ltd and World Bank aiming to execute energy efficiency across India, finance purchase of plant/machineries and meet the costs of capital expenditure.

Benefits

  • The applicant needs to pay Rs. 30,000 including taxes and rest of the amount will be paid by SIDBI.
  • Minimum loan of Rs. 10 Lakh and a maximum amount of Rs. 150 Lakh can be taken.
  • Waiting period of 6 months before the EMI of the loan begins.
  • Repayment Period of 36 months for a loan amount of Rs. 100 Lakh and 60 months for loans above Rs. 100 Lakh.

2. Credit Guarantee Scheme

This scheme aims to provide credit support to the MSME sector of India. The lending institutions include public, private and even foreign banks. Some of the regional rural banks also provide this facility.

Benefits

  • 75% of the credit facility is provided as guarantee cover which is up to Rs. 150 Lakh.
  • For micro-enterprises credit facility of 85% for loans up to Rs. 5 Lakh.
  • 80% of credit facility for women entrepreneurs and loans for North-Easter states except Sikkim.
  • Guarantee Cover of 50% of the amount to a maximum of Rs. 50 Lakh for MSME Retail Trade.

The loan will begin when you make payment for the guarantee fee and will continue upon the agreed tenure.

In case working capital facilities are provided to the applicant, the period will be of 5 years or as specified by the guarantee trust.

3. Business Loans in 59 Minutes

This scheme is launched by the Prime Minister to automate the entire process of loan approval and provide easy access to the MSME sector. The applicant gets an in-principle approval in less than 60 minutes and the amount gets credit to the bank account within 8 working days.

For this, the Government of India has launched a new portal to speed up the process of MSME loan in 59 minutes.

Benefits

  • The loan is currently offered by SIDBI along with other public banks like PNB, SBI, Bank of Baroda, Indian Bank and Vijaya Bank.
  • The platform is linked with Credit Guarantee Fund Trust for Micro and Small Enterprise scheme to check the eligibility of the applicants.
  • The minimum loan value is Rs. 1 Lakh and the maximum is Rs. 1 Crore with 8% rate of interest.
Note: The applicant’s details are checked from various sources like IT returns, GST data, bank statements etc.

4. Pradhan Mantri Mudra Yojana

This scheme provides loans to banks or Micro Finance Institutions (MFI’s) for lending money to units with requirement of up to Rs. 10 Lakh. The loan can be availed as per these three categories.

  • Shishu – Loans up to Rs. 50,000
  • Kishor – Loans above Rs. 50,000 and up to Rs. 5 Lakh.
  • Tarun – Loans above Rs. 5 Lakh and up to Rs. 10 Lakh.

The primary targets of this scheme are women, backward classes, tribals or Dalits who fail to get an excess to credit facilities provided by the government.

Note: These loans are issued without any collateral.

5. Make in India Soft Loan Fund (SMILE) 

This scheme provides MSME loans to new businesses and also existing enterprises, who wish to grow their business, upgrade technology or undertake any new project.

Benefits

  • 10% of the project cost which is a maximum of Rs. 20 Lakh is provided as loan amount to the general category.
  • 15% of the project cost which is a maximum of Rs. 30 Lakh is provided to entities falling in SC, ST, Person with Disabilities and Women category.
  • The repayment period is generally up to 7 years.

How to get MSME Loan?

The application process of availing a loan might differ with different banks or schemes. To get a MSME Loan -  

  • Approach the concerned finance institute like bank branches, National Small Industries Corporation (NSIC) or State Financial Corporation.
  • File the application form with all the required information/details and documents.
  • The concerned authorities will verify all the details and on satisfaction will approve the loan.
  • The amount will be credited in the bank account mentioned in your application.
Note: The application can also be filed through online mode by visiting the respective website.

RBI changes loans structure in 2019

The Reserve Bank of India has announced to restructure existing loans to MSME sector which are in default but standard on 1st January 2019.

This has to be implemented by March 2020 with 5% provision of the total outstanding loan. In addition, money set aside for potential losses have to be made for such applicants.