SME / MSME Loan
About SME/MSME Loan MSME stands for micro, small and medium enterprises, sometimes it is also shortened to SME for small and medium enterprises. But, in essence, MSME and SME loans are the same and are offered to businesses that fall under these two categories. Mostly, these loans are given to startup owners, small business owners, and women entrepreneurs on a short-term basis. The duration of MSME / SME loans varies from lender to lender. MSME LOAN: SME LOAN:
MSME loans are designed for such specific moments. MSMEs generally do not get support in the form of business loans from mainstream banks due to many reasons.
SME loan is designed specifically for the needs of small businesses and can lend very small amounts. Plus, MSME loans are collateral-free and available for relatively new businesses as well, something which is not available in a regular business loan.
Definition of MSME
Classification Micro Small Medium Manufacturing and Servicing Investment < Rs 1 crore and Turnover < Rs 5 crore Investment < Rs. 10 crore and Turnover < Rs. 50 crore Investment < Rs 20 crore and Turnover < Rs. 100 crore
What can an MSME/SME loan be used for?
List of Applicable SME/MSME Loan Customer Profiles
Allopathic doctors, chartered accountants, company secretaries, and architects are practicing their profession. Proof of qualification needs to be shared.
Traders and manufacturers, retailers, proprietors, service providers, etc.
Partnerships, limited liability partnership, private limited, and closely held limited companies. Other constitution types depending on their profile on a case to case basis.
Features of MSME Loan MSME loans are an effective source of funds for business owners who wish to expand or even set up their businesses on a small scale. Do’s & Dont’s State Bank of India MSME Loan Features: · First year – 1% of sanctioned amount plus taxes · 2nd year onwards – 0.35% plus taxes ICICI Bank MSME Loan Features: Bajaj Finserv MSME Loan Features: Axis Bank MSME Loan Features: Tata Capital MSME Loan Features: Yes Bank MSME Loan Features: HDFC Bank MSME Loan Features: Aditya Birla Capital MSME Loan Features: Mahindra Finance MSME Loan Features:
Some of the features of MSME loans are listed as follows:Name of the SME Loan Nature of Scheme Maximum Loan Amount Processing Fee Collateral SME eBiz Loan Cash credit Rs.500 lakh At least 35% in the form of land/building, liquid securities, etc. Simplified Small Business Loan Dropline overdraft facility Rs.25 lakh – Minimum 40% Standup India Working Capital or term loan Rs.1 crore 0.20% of the loan amount Not required SME Smart Score Cash credit or term loan Rs.50 lakh for manufacturing units and Rs.25 lakh for trade and services As per the bank’s terms and conditions As per bank’s extant norms SME Credit Card Term loan or cash credit Rs.10 lakh As applicable to SBF and SSI units No collateral for SSI but for SBFs, loans over Rs.25,000 will require a collateral/guarantee Doctor Plus Term loan Rs.5 crore 50% concession on card rates No collateral required for loans up to Rs.2 crore.
For loans above Rs.2 crore and up to Rs.5 crore, 25% tangible security needs to be providedMedical Equipment Finance Term loan Rs.20 crore 50% concession on rate cards No collateral required for loans up to Rs.2 crore.
For loans above Rs.2 crore and up to Rs.20 crore, 25% tangible security needs to be providedE Dealer Finance Scheme Cash credit Based on requirement Rs.10,000 to Rs.30,000 Up to 50% based on the tie-up E Vendor Finance Scheme Cash credit Based on requirement Rs.10,000 to Rs.50,000 Nil Asset-backed loan Dropline overdraft Rs.20 crore 1% of the limit Immovable property in the form of registered or equitable mortgage of land or building Fleet Finance Term Loan Rs.10 crore 1% of the limit No collateral required for loans up to Rs.1 crore.
For loans over Rs.1 crore, at least 20% of the tangible asset needs to be provided as collateralPM Mudra Yojana Working capital and term loan Up to Rs.10 lakh 0.5% of the loan amount Not required Export Packing Credit Working capital Based on requirement As per working capital/cash credit limits As per working capital/cash credit limits Lease Rental Discounting Term Loan Rs.50 crore As per existing instructions Equitable mortgage or any other acceptable property Open Term Loan Information Not Available Information Not Available Information Not Available Information Not Available Warehouse Receipt Finance Working capital demand loan/cash credit facility/revolving demand loan Based on requirement and eligibility Nil to Rs.3 lakh Personal guarantee of directors, partners, etc.
Processing Fee Stamp Duty Charges Commission on Bank Guarantees and Letters of Credit Commitment Fees Foreclosure Charges Up to 2% of the facility amount plus applicable taxes As per state tax laws Up to 2% p.a. on pro-rate basis Average utilization below 60% – 0.50% on the difference between the actual utilization and average quarterly utilization 4% Document Processing Charges Bounce Charges Penal Interest Prepayment Charges Rs.1,449 plus applicable taxes Up to Rs.3,000 2% per month plus taxes 4% on the loan amount plus taxes
Name of the Scheme Nature of the scheme Loan Amount Collateral Coverage MSE Power Term loan and working capital requirement including letter of credit, rupee export credit, bank guarantee, etc. Rs.10 lakh to Rs.5 crore 100% of loan amount Services Power Working capital and term loan requirement including cash credit, letter of credit, inland bill discounting, rupee export credit, etc. Rs.10 lakh to Rs.5 crore 100% of loan amount SME Power Working capital and term loan requirements including inland bill discounting, cash credit, bank guarantee, etc. Rs.10 lakh to Rs.5 crore 125% Business MPower Overdraft Overdraft facility Rs.10 lakh to Rs.5 crore Residential, commercial, and industrial property to be provided as collateral Business Mpower Term Loan Term loan Rs.10 lakh to Rs.5 crore Residential, commercial, and industrial property to be provided as collateral Power Rent Term loan Rs.5 lakh to Rs.20 crore Contracted lease rental receivables LCBN Power Short term loan Rs.5 lakh to Rs.5 crore Nil Zero Collateral Loans Working capital and term loan Rs.5 lakh to Rs.1 crore – Business Loan for Property Loan for acquiring office space for business Rs.5 lakh to Rs.5 crore
– Business Power Working capital to bank’s existing Current Account customers Rs.10 lakh to Rs.2 crore Flexible collateral security
Processing Fee Penal Interest Foreclosure Charges Loan Cancellation Charges Maximum 2.75% of the loan amount plus GST 3% of overdue amount per month plus GST 4.5% on the future principal outstanding on the current loan plus GST (Foreclosure allowed only after 9 months) Rs.5,750 or 2% of loan amount, whichever is higher
Name of the scheme Nature of the scheme Maximum Loan Amount Collateral YES Samriddhi · Fund based – Overdraft, term loan, cash credit, export credit, etc.
· Non-fund based – Buyers credit, letter of credit, bank guaranteeRs.4 crore Commercial/residential/industrial plot Yes Suyog · Fund based – Working capital demand loan, overdraft, term loan, cash credit, etc.
· Non-fund based – Bank guarantee, buyers’ credit, letter of credit,Rs.2 crore Industrial/commercial/residential/NA plot/surrender value of LIC/FD/BG Smart Overdraft Dropline overdraft and overdraft Rs.1 crore Industrial/commercial/residential/NA plot/surrender value of LIC/FD/BG Cash Backed Lending Program Non-fund based – Bank guarantee, letter of credit, buyers’ credit – – Channel Finance Working capital – – YES GST Overdraft based on GST returns Rs.1 crore –
Rack Interest Rate Loan Processing Fee Prepayment Charges Overdue EMI Interest Amortisation Schedule Charges 15.65% to 21.20% Up to 2.50% of the loan amount (Minimum – Rs.2,359 and maximum – Rs.88,500 · 7 to 24 months – 4% of principal outstanding
· 25 to 36 months – 3% of principal outstanding
· Over 36 months – 2% of principal outstanding2% per month on EMI or principal overdue subject to a minimum amount of Rs.200 Rs.200
Type of Loan Loan Amount Repayment Tenure Loan Margin Security Project Finance Up to Rs.40 crore Up to 5 years Based on the profile of the customer Usually 1.5 times of asset cover Equipment Finance Up to Rs.25 crore 6 months to 5 years Flexible Usually 1.5 times of asset cover Corporate Loans Up to Rs.25 crore 1 year to 5 years – Usually 1.5 times of asset cover Secured Business Loans Rs.10 lakh onwards Up to 36 months – Unencumbered commercial, residential, or industrial, and land properties Unsecured Business Loans Rs.1 lakh to Rs.5 lakh Up to 12 months – No security required Working Capital Loans Up to Rs.25 crore Up to 36 months – Plant and machinery, land and real estate property, fixed deposits, deposit certificates, etc. Bill Discounting Up to Rs.10 crore Up to 12 months – Kisan Vikas Patras (KVPs), securities issued by state and central government, etc. Lease Rental Discounting Up to Rs.25 crore Up to 7 years – Mortgage of the leased property
Comparison of Best SME / MSME Loan Offers from Top Banks / NBFCs
| Bank/NBFC | Interest rate (p.a.) (2019) | Type of Equipment Loan |
|---|---|---|
| Bajaj Finserv | 18% onwards | All equipment |
| Bank of Baroda | Competitive interest rate | Construction and mining equipment |
| DHFL | At its sole discretion of bank | Plant and machinery Medical equipment |
| HDFC bank | 8.93% onwards | For commercial or construction equipment only |
| ICICI bank | At its sole discretion of bank | Construction loan |
| Kalupur bank | 9.50% onwards | Manufacturing and service sector |
| Kotak Mahindra bank | 8.90% onwards | Farm equipment Construction equipment |
Common Eligibility Criteria for MSME Loan As MSME loans are unsecured MSME / SME Loans, there are some minimum eligibility requirements in order to reduce the risk for lenders,
Parameters Individual Applicant Non-Individual Applicant Minimum Age 24 Years -Profitable Operations for 3 years
-Stability of Operations (Geography) for at least 2 years Maximum Age (on Maturity
of Loan)65 Years Turnover Turnover of More than 2.5 crore Turnover of More than 2.5 crore Profit (PAT) Positive for the past two years Positive for the past two years
Eligibility factors for getting SME/MSME loan In order to avail of an MSME loan, one needs to fulfill certain eligibility factors. Bajaj Finserv Eligibility Criteria for MSME loan To apply for an SME or MSME loan from Bajaj Finserv, you must be one of the following: In addition:
These are listed as follows:
• Self-employed professionals (SEP) :
Allopathic doctors, company secretaries, chartered accountants, and architects who are practicing their profession
• Self-employed non-professionals (SENP) :
Traders, retailers, manufacturers, proprietors, and service providers
• Entities :
Partnerships, limited liability partnerships, private limited, and closely held limited companies
• You should be an Indian resident aged between 25 and 66 years
• Your business should have a vintage of at least 3 years
Documents required for a business loan The documentation requirements for business loans are : General checklist of documents required for MSME Loan Financial Documents How to apply for an MSME Loan with NBFCs? The first and most important aspect of getting any business loan is to understand what the requirements of the business are? It will then tell you which type of loan should you go for. It can be a working capital loan, machinery loan, small business loan, and so on. It also helps you in convincing your lenders as they will be aware of how the loan amount is going to be utilized. If the number of options present is an advantage, it is also a headache to choose the best lender for the business. There are several NBFCs in the market, offering different MSME loan schemes, and any business must carry out a good amount of research to identify the best NBFC for your business. Apart from the rate of interest, a business must also understand how customer-friendly policies are, which slightly varies from one NBFC to another. After completing the research and reaching a decision regarding the particular NBFC you are going to go for, visit their website and fill in the application form online. Be careful while filling up your application form and make sure you give all the right information, or else, it might reduce your chances of getting the loan. After submitting the application form, you would be asked to upload some basic documents for the verification process. Make sure you have all of them ready beforehand so that you can get your business loan approved as fast as possible. Once the documents are verified, and your application is approved, the funds get credited in your account within a few working days. Now, all you need to do is smartly utilize the amount to be able to pack the business loan amount in time. Opportunities are aplenty, but you need to be smart enough to capitalize on them. Make sure you use the business loan amount in an efficient manner which ensures the growth of your business along with the repayment of the loan in the stipulated time. PNB Documents required for MSME Loan Bajaj Finserv documents required for MSME Loan Specific documents as per your business type Axis Bank Documents Required for MSME loan TATA Capital documents required for an MSME/SME loan The following documents have to be submitted along with your duly filled loan application form to avail an
Applicants need to provide identification proof with appropriate KYC documents including Aadhar card, voter ID, PAN card, passport, driving license or any other valid document issued by the government.
Other than KYC, documents like passport, electricity bill, ration card, telephone bill, lease agreement, trade license or certificate of trade license can be used as address proof when applying for a Bajaj Finserv Business Loan. Applicants can also opt for any other document issued by the government as address proof to complete their loan application.
The common business loan documents list that self-employed professionals and non-professionals need to submit are as follows:
The proof of business ownership required for a Bajaj Finserv Business Loan depends on the type of business and applicant profile. Documents for various business profiles are mentioned below:
Registration document in case of sole proprietors.Other proofs of business identity for self-employed professionals include documents issued in the concern’s name like PAN card, payment receipt for municipal tax, electricity bill, IT returns, etc.
Sole proprietor’s registration document, individual identity proof of the owner, IT Returns, at least 6 months of bank statements of the owner, statement of creditor/book debt/periodic stock, GST return, etc.
Partnership agreement in case of partnership firms and Certificate of Commencement/Article and Memorandum of Association for Private Limited companies. Other supporting documents for these concerns include returns of Income Tax, Goods and Services Tax, registration certificate under the Shops and Establishment Act, etc. Besides, partners and directors also need to submit individual proofs of identity.
Upload the PDFs of the documents and wait for the verification process to complete.
Aadhaar Card, Voter’s ID Card, Bank statement, registry copy, rent agreement, utility bills
Passport, Driving License, PAN Card, Aadhaar Card, Voter’s ID Card</li>
PAN, sales tax/ excise/ VAT/ service tax registration, Copy of partnership deed, Trade license, certificate of practice, registration certificate issued by RBI, SEBI
General documents required for MSME loans
When applying for an MSME loan, the required documents normally include KYC documents, entity documents and financial statements. Here is a list that can serve as a general MSME loan document checklist:
PAN card, Aadhaar card, driving license, passport, voter’s ID, etc.
Ration card, electricity bill, lease agreement, trade license, etc.
Last two years ITR, audited balance sheets and profit and loss statements, last 6 months’ bank statements, projected turnover, etc.
Registration certificate, memorandum and articles of association, other certificates of business’ existence.
The documents required for MSME loans that you need to produce differ as per business type:
Registration certificate, ITR, or other proof of business identity. In case you are a Self-Employed Professional (SEP), you should produce proofs of your qualification. For self-Employed Non-Professionals (SENP) like retailers and traders, proof of business suffices.
Certificate of incorporation, memorandum of association, articles of association.
Registration certificate, partnership deed.
Registration certificate, articles, and memorandum of association.
MSME/SME business loan with Tata Capital:
a copy of Voter ID/Passport/Driving License/Aadhaar Card
Trade License/Sales Tax Certificate/Sole Proprietorship Declaration/ Partnership Deed/Income Tax Returns along with computation for the last two years/Profit and Loss Statement and Balance Sheet for the last two years
What is the advantage of MSME loans by Indian Loan Bazaar? Ans.
We offer MSME loans with quick turnaround time and personalized loan terms.
What is the difference between MSME loans and SME loans? Ans.
There is no difference. MSME stands for micro, small and medium enterprises whereas SME stands for small and medium enterprises. MSME loans are sometimes termed as SME loans.
What is the turnaround for MSME loans by Indian Loan Bazaar? Ans.
If all your documents are in order, we offer a turnaround time of 1 to 3 working days.
What are the documents required for getting a quick MSME loan? Ans.
You need proof of business registration, 12-month bank statements, PAN card details, GST and IT filings, and KYC info in digital format.
What determines my sanctioned loan limit and how can I increase it? Ans.
Your credit rating and the financial health of your business i.e. revenues and profit margins are a deciding factor in determining the loan amount. You can increase it by improving the credit rating through the settlement of sundry debts and optimizing operating expenses.
How can I utilize an MSME loan fully? Ans.
You can diversify the use of MSME loan funds, utilizing them for working capital optimization, inventory management and purchase of equipment.
What are the processing fees and pre-closure charges for MSME loans? Ans.
We charge a processing fee of 1-2% depending on your loan amount. There are no pre-closure charges for MSME loans by Indian Loan Bazaar.
How to renew my MSME loan after repayment/prepayment? Ans.
You can renew your loan for the same sanctioned amount by paying the processing fee (2% of the principal amount).
What is the loan amount offered by banks and NBFCs to SMEs? Ans.
The minimum loan amount offered is Rs. 50,000 and the maximum loan amount depends on the business requirements and credit score, financial history and repayment capacity of the applicant.
What is the interest rate offered by government loan schemes to SMEs? Ans.
The interest rate offered under government loan schemes and offered by banks starts from
8.40% per annum and can exceed up to 24% per annum.
Can I foreclose my loan amount? Ans.
Yes, you can foreclose your loan account by paying foreclosure fees to the respective bank or NBFC.
What is the repayment tenure of the SME loan? Ans.
The repayment tenure of SME loans ranges between 12 months to 120 months.
Which type of interest rate is offered to SMEs? Ans.
Interest rates offered by SMEs could be fixed or floating depending on the bank and
NBFC.
Do I need to submit any collateral or security to avail SME loan? Ans.
No, you are not required to submit any collateral or security as SME loans are unsecured loans and even a third-party guarantee is not required.
Is there any turnover limit for MSME? Ans.
The turnover limit for MSME is ₹ 5 Cr for micro enterprise, ₹ 5 Cr to ₹ 75 Cr for small enterprise, and for medium enterprise it is ₹ 7.50 Cr to ₹ 250 Cr.
Do Banks provide MSME loan schemes? Ans.
Various banks provide MSME loans. Some of the top lenders of MSME loans are SBI, Bank of Baroda, Bajaj Finserv and Tata Capital.
How can I get an MSME loan? Ans.
Both banks and NBFCs offer MSME loans. You can get an MSME loan by either applying online or by visiting the lender. However, meeting eligibility and document requirements is necessary.
The small-scale business sector, which is more popularly known as the Small and Medium Enterprises (SME) sector, is responsible for contributing around 40% to the total Gross Domestic Product (GDP) of India. Gross Domestic Product (GDP) of India. This sector is a key source of employment in India but faces stiff competition from privately-funded businesses. Realizing this, the Government of India has come forward to offer many loan schemes to
finance the small-scale business sector. These loans can be availed by the SMEs to fund their day-to-day operations, expand their business, purchase new equipment, etc.
Government Loan Schemes for Small Scale Businesses
| Name of the Scheme | Rate of Interest (p.a.) | Loan Amount | Repayment Tenure |
|---|---|---|---|
| SIDBI Make in India Loan for Enterprises (SMILE) | At the discretion of SIDBI | Rs.10 lakh onwards | Up to 10 years including 3 years moratorium |
| Pradhan Mantri Mudra Yojana (PMMY) | Varies from bank to bank | Up to Rs.10 lakh | Varies from bank to bank |
| Credit Guarantee Scheme | – | Up to Rs.1 crore | – |
| Bank Credit Facilitation Scheme | Varies from bank to bank | Varies from bank to bank | 5 years to 7 years |
| Stand-Up India Scheme | Up to base rate + 3% + tenor premium | Rs.10 lakh to Rs.1 crore | 7 years |
| MSME Loans in 59 minutes | 8.5% onwards | Rs.1 lakh to Rs.5 crore | As per the bank |
Features:
- The scheme has been designed to foster innovation, facilitate investment, protect intellectual property, enhance skill development, and build the best infrastructure for MSMEs.
- Under the scheme, loans will be offered in the forms of soft loans and term loans.
- MSMEs engaged in 25 selected sectors will receive financial support at competitive interest rates as part of the ‘Make in India’ campaign launched by the government of India.
- New enterprises in the services and manufacturing sector will be given importance along with an emphasis on smaller enterprises within the MSME.
- Competitive rates of interest
- The repayment period will be longer
- The loan amount will be dispensed to your bank account quickly
Features:
- The scheme will extend loans to activities that create employment and generate income in the areas of services, manufacturing, retail, and agriculture.
- No collateral or security need to be provided to avail of the Mudra loan.
- Three types of loans can be availed under Mudra for different stages of the business, namely, Shishu, Kishor, and Tarun.
- The loans under the Mudra Yojana will be extended by public sector banks, private sector banks, cooperative banks, Regional Rural Banks (RRBs), foreign banks, Non-Banking Financial Companies (NBFCs), and Micro Finance Institutions (MFIs).
Features:
- The scheme was launched with an intent to offer collateral-free credit to the micro and small enterprise sector.
- Both the working capital facility and term loans are eligible to be covered under the scheme.
- Under the scheme, guarantee cover can be availed up to 85% of the sanctioned amount of the credit facility.
- For micro enterprises seeking a loan of up to Rs.5 lakh, MSEs owned and operated by women, and loans in the North-Eastern region, guarantee cover of up to 80% will be provided.
Features:
- The loans under this scheme are facilitated by the National Small Industries Corporation (NSIC) which has signed a Memorandum of Understanding (MoU) with banks to offer loans to meet the credit requirements of SME units.
- The facilitation is carried out by offering MSME units the option to pick between private and public sector banks.
- The loans are available in the form of working capital and term loans.
- Through this scheme, the NSIC will also help SME units to get loans at affordable rates, help with the documentation process, and other necessary services related to the loan.
Features:
- Designed specially to meet the fund requirements of Scheduled Caste (SC)/Scheduled Tribe (ST)/women entrepreneurs to set up a greenfield enterprise.
- The enterprise should be engaged in the business of manufacturing, trading, or services.
- The loan will be of composite nature which means that the loan will be inclusive of working capital and term loan.
- If the enterprise to be set up is non-individual, the controlling stake (51%) should be held by either an SC, ST or women entrepreneur.
Features:
- You can avail of a loan of up to Rs5 crore where the amount will be deposited to your account in less than 60 minutes.
- Minimum documents are required. You only have to upload the scanned versions of the required documents and upload them online for you to avail of the loan.
- You can avail of a loan between Rs.1 lakh and Rs.5 crore under this loan scheme. Since you have the option of availing this loan from any of the lenders, the rate of interest levied may differ. The rate of interest however starts at 8.5%.
The eligibility criteria for government loans for small scale businesses will vary from lender to lender but the basic ones have been listed below:
| Type of Business | All micro enterprises engaged in trading, manufacturing, and services sector including professionals such as architects, doctors, CAs, etc. |
| Residential Status of the Applicant | Resident of India |
| Age | Between 25 years and 66 years |
| Status of the Business | New or existing enterprises |
| Application form | Filled and duly signed |
| KYC Documents | Business entity proof, partnership deed, incorporation certificate, |
| PAN Card | • Of partners/directors/proprietors/promoters • Of the business entity |
| Financials | • Projected turnover and current year performance • Tax audit reports, balance sheet, profit and loss report, VAT returns, audited and provisional financials, etc. |
| Address Proof | • Of the business entity • Of directors/promoters/partners/proprietors |
| Bank Statements | For the last 6 months |
| Photographs | Passport-size photograph of applicant/co-applicants |
Some lenders will also allow you to apply for business loans online on their respective websites. You can visit their websites, fill up the application form provided, upload the relevant documents, and submit it. Once you complete the process and the verification is done from the bank’s end, the loan amount will be credited directly into the bank account you provided during the application process.
Government Loans for Small Scale Businesses FAQs
- What are how I can pay my small-scale business loan?
Answer: You can choose to repay your small scale-business loan in any one of the following ways – Post Dated Cheques (PDCs), Electronic Clearing Service (ECS), and Direct Debit. ECS and Direct Debit are the more preferred form of repayment by borrowers of small-scale business loan.
- What is the maximum amount of loan I can avail of as a business loan?
- Do I need to provide any collateral or security to avail of a government loan for small scale business?
- Can I avail of a loan under the Mudra scheme to start my own business?
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