MSME loans in India

MSMEs (Micro, Small and Medium Enterprises) are vital for economic development in any country especially so for a developing economy like India. The MSME sector was instrumental in saving the Indian economy from the recession in 2008 and continues to play an important part in the growth story of India. 

How to get MSME Loans in India

MSMEs may be categorized into two categories based on the fact that they are engaged in manufacturing and or provide services. They are classified as micro, small or medium based on their annual turnover. Loans provided by banks and NBFCs to micro, small and medium enterprise owners for expansion of business and start-ups for setting up a new business venture are known as MSME loans. These loans are available to the business owner if he/she meets the eligibility criteria for getting the loan sanctioned. If you are wondering about how to get MSME loans then read on to understand the process.

Eligibility

The applicant has to meet the eligibility requirements for getting the loan sanctioned. The eligibility criterion for the loan may vary slightly from one lender to another however MSME loan requirements broadly remain similar across lenders. A few of the eligibility requirements are listed below (not an exhaustive list):

·       Business must be involved in either manufacturing or service sector. Trusts, NGOs or charitable institutions may not be eligible to apply for these loans.

·       The enterprise for which the loan is sort has to adhere to the investment limit set for each category (manufacturing/service or micro/small/medium).

·       The minimum and maximum age limit for the applicant may be specified as per lender rules.

·       Lenders may also specify the number of years a business must have been in operation for seeking a loan (not applicable to start-ups).

Documentation

Like any other loan, MSME loans are also given based on the applicant providing the required documents. Documents required may vary slightly depending on the lender policy and business type. Generally business loan documents required for availing these loans include;

·       Identity proof which may be one of the following; PAN card, passport, Aadhaar card, Voter’s ID

·       Address proof

·       Business address proof

·       Income tax returns

·       Sales tax returns

·       Balance sheet for last three years

·       Projected balance sheets

·       Project reports and copies of title deeds that may be offered as securities (in case required).

Loan Application Process

 Most lenders in current times offer the option of applying for the loan online or by visiting a branch. In case the applicant chooses to apply online then the form can be filled online and the documents can be also uploaded online. One can also choose to visit a branch and complete the required formalities at the branch.

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A Few Helpful Tips

Before seeking any loan it’s important to bear in mind a few aspects; some of them are listed below:

·       Always assess your loan requirements carefully before applying for a loan. A smaller then required loan could hinder smooth functioning of the business while borrowing more than required will add to the cost of funds.

·       Research well before choosing a lender, compare not only based on interest rates offered for the loan but focus on aspects like disbursal time etc.

·       Go through the fine print to understand hidden costs, see if there are foreclosure charges or not.

·       Last but not the least always make sure you pay your EMIs on time to avoid penalties and a hit in your credit rating.

If you have any queries or questions about MSME loans please do write to us at [email protected]

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