This is how you can apply for an MSME loan

India, as a country, is built on small-scale industries. Cottage industries, as they are called, are the source of employment, livelihood and a way of life for many. And it is a fact that to become a big you need to start small.

Running a small or a medium scale company is not easy. While the industry may be booming, generating funds and running the business takes a lot of time and effort. Sometimes, just sometimes, these efforts don’t really bear fruits till a later day. What do you do at times like these? AN MSME loan can be the answer.

Next question that may be lingering in your mind is how do you know if you can avail an MSME loan and how would you go about availing an MSME business loan?

Why is an MSME Loan important?

One of the most important inputs required for Micro, Small & Medium Enterprises (MSME) is financial capital to fund the enterprise. Often, small businesspersons find it difficult to source funds and therefore have to approach banks and NBFCs such as Tata Capital to avail an MSME business loan.

Most lenders offer MSME loans to encourage small businesses to operate their business in localized regions so that customers in and around the area can take advantage of lower costs of production and hence lower price. These lenders also treat MSME loans as a legitimate and necessary part of their business to grow their lending portfolios. The MSME loan business is a huge business for any lender to ignore.

MSMEs provide millions of jobs to locals besides offering products and services that their larger counterparts require in a particular area or a region. Thus, an MSME business loan helps small businesspersons to contribute to the economy of the region in particular and the whole Indian economy in general.   

Profile of MSME

If you are a micro, small or medium enterprise engaged in production activity or service activity you can apply for an MSME business loan. Typically, an MSME could be from any kind of legal business activity that produces goods and services in the region. The government classifies an enterprise as micro, small or medium based on investments required to operate a manufacturing enterprise or a service enterprise. The classification is as follows:

Manufacturing Sector Enterprises

These are enterprises in which investment in plant & machinery fall within limits as specified

  • Micro Enterprises – Does not exceed Rupees 25 lakh.
  • Small Enterprises – More than Rs 25 lakh but does not exceed Rs 5 crore
  • Medium Enterprises – More than Rs 5 crore but does not exceed Rs 10 crore

Service Sector Enterprises

These are enterprises in which investment in equipment fall within limits as specified

  • Micro Enterprises – Does not exceed Rupees 10 lakh
  • Small Enterprises – More than Rs 10 lakh but does not exceed Rs 2 crore
  • Medium Enterprises – More than Rs 2 crore but does not exceed Rs 5 crore

As can be seen from the classification, a large number of enterprises can fall within the ambit of an MSME. Thus, any entity engaged in business activities that are within the investment limits specified can qualify for business loans. Typically, MSMEs receive special treatment from time to time from the governments both at the centre and the states to encourage local businesses. Some of the benefits that MSMEs can enjoy include lower business loan interest rates and tax holidays. Often, governments offer interest subsidy to help lower the business loan interest rate.

Who can qualify for an MSME Loan?

Both existing and new businesses can qualify for MSME business loans.

New MSMEs

If you are an entrepreneur intending to commence an MSME, you can apply for an MSME business loan with credentials that include

  • Age profile between 25 and 65 years
  • Any type of ownership structure as per prevailing laws
  • Viable project report

Lenders such as Tata Capital also offer special terms for business loans online to micro-enterprises run by women to encourage women entrepreneurs to stand on their own feet, which include inter alia lower business loan interest rate.

Existing MSMEs

If you are an existing MSME, you can apply for an MSME loan to improve your business by investing in plant and machinery or equipment provided that your enterprise is

  • Running profitably in the three previous years
  • In stable running condition and displaying growth year-on-year
  • Filing ITR
  • Having a high business credit score from a recognized credit bureau

As can be seen from the above, both entrepreneurs venturing into a new business or expanding an existing business are eligible for MSME business loans.

Thus, the MSME ecosystem is quite large encompassing a variety of business from micro, small and medium enterprises in the manufacturing and services sectors. In the services sector, business activities could include tailoring, beauty parlours, hair salons, crèches, play schools, day care centres, flower shops, DTP centres, Internet browsing centres, computer training institutes, photocopying centres, photo studios, flower shops and many other businesses which can be gender specific as well. In the manufacturing sector, all small-scale units producing goods can qualify for MSME business loans. These could include manufacturing units for the manufacture of paper cups, soap, candles, tissues, and agarbattis, small components, textiles and other products.

If your industry or company falls in any of the above segments, and you need cash inflow, you can apply for an MSME business loan from an institute like Tata Capital. Before you avail, do check your business loan eligibility so that you have an idea as to how much business loan you can avail and how to schedule your repayments.