Loan for MSME/SME

MSME Loan Introduction

MSME Loan Scheme For Pandemic

The estimated 6.3 crore MSME units are considered as the backbone of the Indian economy. With the ongoing lockdown, the government introduced relief packages to support stressed MSMEs. The aim of providing these relief packages is to help meet the temporary liquidity mismatch due to the Pandemic crisis. This includes payment of statutory dues, salary/wages/electricity bills/rent etc.

Finance Minister of India, Nirmala Sitharaman announced the economic package to help the stressed MSMEs, sustain the disruptions caused by the Pandemic lockdown. The scheme offers:

• Collateral-free loan package of about Rs. 6 lakh crore

• Providing Rs. 3 lakh crore for small businesses

• Rs. 30,000 crore lifeline to non-bank and housing finance companies (NBFCs).

The goal behind this economic package is to build a self-reliant India. The focus of “Atma Nirbhar Bharat Abhiyan” would be on land, labour, liquidity and law.

MSME Definition Revised

The booster scheme has brought a change in the definition of what constitutes an MSME. From now on, enterprises with an investment of less than Rs.1 crore and turnover less than Rs. 5 crore will be treated as micro, while businesses with less than Rs. 10 crore investment and Rs. 50 crore will be considered under the small category. The businesses that have an investment less than Rs. 20 crore and turnover less than Rs. 100 crore will fall under the medium category.

Nirmala Sitharaman also stated that these changes will help businesses in the sector to expand and still reap benefits accorded to MSMEs by the government.

MSME Loan Eligibility

An applicant needs to fulfil the following MSME business loan eligibility when applying at Finserv MARKETS-

• Applicant must be within the age-group of 25-55 years
• The applicant’s business vintage must be more than 3 years
• The applicant’s business should have filed for Income Tax Returns for at least the past 1 year
• The applicant must have a minimum credit score of 750
• The applicant must not have any past record of loan default in his/her name or in the name of the business.

Eligibility For MSME Loan Scheme 2020

The government with its “Atma Nirbhar Bharat Abhiyan” package revised the definition of Micro Small and Medium Enterprises (MSME). The changes are made in the favour of MSMEs, as many successful MSMEs fear to outgrow the size of what has been defined as an MSME and end up losing their entitled benefits. With the revised definitions, the MSMEs can think of expansion and still avail benefits.

• Fund Based Working Capital Limits irrespective of sector/ constitution are eligible for the booster scheme. This facility should be given only to the going concern borrower as on the date of sanction.

• Existing MSME units having credit limits with satisfactory credit record of at least two years are considered eligible for the scheme.

• All standard accounts including (Special Mention Account) SMA-0, SMA-1 on the date of sanction irrespective of internal rating are eligible.

Types of Company that are eligible for MSME Loan Schemes

• Partnership Firm

• Proprietorships

• Limited Company

• Hindu Undivided Family 

• Producer Company

• One Person Company

• Private Limited Company

• Limited Liability Partnership

• Any association of persons

• Co-operative societies

Documents Required For MSME Loan

• Identity Proof: Aadhar Card, Passport, Voter ID card, etc.

• Address Proof: Electricity bill, Telephone bill, Passport, Aadhar Card, Driving License

• Business Proof: Certificate of business existence, Income tax filings for the previous financial year, profit and loss statements for the past 3 years, etc.

• 2 Passport-size photographs

MSME Loan Restructuring

To ease the stress of the pandemic outbreak on MSMEs, the RBI has extended loan restructuring for Micro, Small and Medium Enterprises for three months to March 31, 2021. This loan restructuring scheme is expected to give additional relief to small enterprises, over and above the government guarantee-backed emergency credit scheme for them. India Ratings and Research Agency stated that between September 2019 and April 2020, the proportion of rated mid and emerging corporates (MEC) universe in default increased to 18% from around 10%. The agency also estimates that 60% of its rated MECs qualify as MSMEs under the new definition.

Smart Ways of Using MSME Loan

MSME Loans are offered to startup owners, small business owners and women entrepreneurs on a short-term basis. The duration of MSME / SME loans is not the same everywhere and it differs from one lender to another. Lack of timely finance is one of the biggest setbacks for the growth of MSME in India. With MSME Loans it is easy to avail instant financing for the business. This helps to cover the financial requirements to carry out numerous business operations with ease.

Here are 5 smart ways to utilize the funds of an MSME / SME loan:

• Inventory Management

Inventory management is a critical part of a small business as its profits depend on the sale volumes. The MSME loan funds can help secure your inventory supply chain. Manage seasonal dips or purchasing new product samples for business sales.

• Purchasing Plant & Machinery

MSME loans can fund the purchase of new equipment required for the business. Since, investment in plant and machinery requires heavy funding, applying for an MSME loan can be to aid such expenses without straining the company capital fund.

• Working Capital Management

If a company is unable to finance for running its day-to-day expenses, the production of wares and services will eventually suffer. An SME owner can apply for MSME loans and use the funds to make sure the company runs smoothly while being able to repay maturing short-term debt and expenses that might arise in the near future.

• Consolidate your Business Debt

MSME loans allow you to consolidate smaller debts and turn them into a single EMI. This helps in reducing the strain caused on the monthly budget but also helps in aligning the debt repayment along with the invoicing schedule.

• Invest in Marketing

With an effective marketing strategy, a business can reinforce the trust and loyalty of its existing customers and acquire new customers in existing or new markets. However, marketing is a costly affair and requires marketing campaigns investment. An MSME / SME loan fund can help with the financing in running such a campaign for your business..

Do’s & Don'ts Before Applying for MSME Loan

Do’s

• Most lenders rely on the borrower’s credit rating for loan approvals. Make sure to check your CIBIL score before applying for an MSME or SME loan.

• Ensure all the required documentation is in place before starting the loan application process.

• Make sure the MSME loan requirements are assessed before applying for the loan. Try not to overestimate or underestimate your MSME loan requirements as in both cases you will end up wasting time and money.

• The business plan of your business specifies how you intend to use the loan funds and the time it might take to generate good returns from the investment.

Don’t’s

• Do not apply with multiple lenders as it will bring down your CIBIL score by several. The lender might see this as financial desperation on your part, which might lower your chances of loan approval.

• Avoid making delays in your loan repayments for existing debts even if you are taking the MSME loan for debt consolidation. This will affect your credit score negatively.

• Be aware of fraudulent lenders that may charge you with huge fees for MSME loan approval. A genuine lender will never ask you for an upfront fee and charge you with a percentage on disbursal of loan.

MSME Loan Interest Rates and Charges

Finserv MARKETS offer affordable SME business loan interest rates, starting from 18%. In addition, nominal charges are levied as processing fees or penalties if the applicant decides to prepay or foreclose the loan.

How to Apply for Business loan for SMEs/MSMEs?

You can initiate the MSME loan process with these easy steps-

Step 1: Fill out the online application form at Finserv MARKETS by submitting your personal and business details

Step 2: Select the amount you want to avail as an MSME loan along with the preferred repayment tenure.

Step 3: Once you submit the online application, you can get it processed and approved under 3 minutes.

You can also check your SME loan EMI with Business Loan EMI Calculator.

How to Apply for MSME Loan Scheme?

The registration process for MSME can be carried out online as well as offline. You can register for more than one industry with an individual registration.

Step 1: Log in to udyogaadhaar.gov.in for MSME Registration

Step 2: Fill in the details in the registration form available at the website

Step 3: Provide documents like your Aadhaar number, Industry name, Address, bank account details, etc.

Step 4: You can also provide self-certified certificates along with the application form.

Step 5: Once the details are filled and uploaded, you will receive the registration number for the same

MSME Loan Interest Rates & Charges

• The interest rate on loans for SME/MSME can be charged up to an interest rate of 9.25%

• Non-banking financial companies (NBFCs) can charge up to 14% on loans.

• The interest scheme will cover only existing borrowers with an outstanding credit limit of up to ₹25 crores as on 29 February, and having a turnover of up to ₹100 crores. 

• Also, including the borrowers with up to 60 days past dues, and cover working capital and term loan facilities.

MSME Loan News Update