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MSME Loan Schemes in India

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Oct 18, 2022
MSME Loan Schemes in India

Micro, Small, and Medium Enterprise loans (MSME loans) are special loans that small business owners and entrepreneurs can apply for. You can use the money for things like stocking up on supplies, upgrading to new machinery, paying employees, or even expanding your firm.

Money is essential for the launch and development of MSMEs. The Indian government has taken numerous initiatives and introduced programmes to make credit available to micro, small, and medium-sized enterprises. 

MSMEs are vital for a robust economy. Access to credit is an important factor for micro, small, and medium-sized enterprises. MSMEs often struggle to secure the financing or credit they need to get started or grow. Through this article, you will learn more about the MSME loan scheme and how budding entrepreneurs can reap benefits from it.

Updated Definition of MSME

The government of India issued the revised definition of MSME in May 2020. The revised definition also means that the standards and criteria of MSME loans will automatically adapt to the revised definition. The updated definition of MSME is as follows:

  • The investment criterion for MSME status has been replaced with a combination of investment and annual turnover. Earlier criteria were solely on an investment basis.
  • The Indian government also raised the minimum required investment into MSME enterprises. The expansion of eligibility for the MSME programmes means that more businesses will be able to take advantage of them.
  • Through this revised definition, the scope of the term MSME has widened making it viable for more entrepreneurs to take benefit of the MSME loan scheme.

Top 5 Government MSME Loan Schemes in India

Let’s go through the top five government MSME loan schemes available to micro, small, and medium-sized businesses:

1. Pradhan Mantri Mudra Yojana (PMMY)

MUDRA, short for the Micro-units Development and Refinancing Agency, is a unique and forward-thinking government programme for small and microenterprises that are not corporate or agricultural. 

Businesses that are not corporations or farms can apply for an MSME business loan of up to 10 lakh rupees through this programme. MUDRA loans are under the umbrella of the PMMY.

For the benefit of MSMEs, there is MUDRA, a non-banking financial corporate (NBFC). Small finance banks, MFIs, and NBFCs all participate in this programme by disbursing loans to small and medium-sized enterprises.

There are three distinct PMMY schemes: “Shishu,” “Kishore,” and “Tarun,” each of which corresponds to a different growth stage and the corresponding funding requirements of the micro-units or entrepreneurs who are its intended beneficiaries.

Who should apply?

This government programme is available to newly established small businesses that require a financial boost to get their operations off the ground. The maximum loan amount for an established MSE is Rs 10 lakh, therefore this programme is ideal for meeting pressing but short-term financial demands.

2. Credit Guarantee Fund Scheme for Micro and Small Enterprises (CGTMSE)

It was initiated by the government of India’s Ministry of Micro, Small, and Medium Enterprises (MSME Ministry) and the Small Industries Development Bank of India (SIDBI). The CGTMSE Scheme offers unsecured loans to micro and small businesses.

The fund for this programme is a joint effort between the Government of India and SIDBI. The goal of the trust is to help small and medium-sized businesses get access to capital without requiring collateral or a guarantee from a third party. 

This policy provides a guarantee of up to 85% for micro-enterprises (up to Rs 5 lakh), 75% for all other businesses, and 50% for retail. All businesses, both new and old, are welcome to apply. Candidates who meet the requirements can apply for aid under this scheme by approaching banks or financial institutions and choosing Regional Rural Banks.

Who should apply?

The government of India’s CGTMSE scheme is best suited to businesses with a physical location and tangible assets like buildings and machines. Businesses can use their existing assets to access loans of up to Rs. 1 crore through mortgages.

3. MSME business loan in 59 minutes

Recently, the government of India announced that they would be providing an MSME business loan for startups in just 59 minutes. There is now a 59-minute lending platform for micro, small, and medium enterprises. 

When applying for a loan for a small or medium-sized business through this platform, the entire process is handled automatically. The loan applications submitted through this system will be processed within one hour. In the next 7 or 8 business days after the loan is accepted through this portal, the funds will be sent to the borrower.

Five nationalised (PSU) banks are authorised to provide loans to small and Medium-Sized Enterprises (MSMEs) under MSME loan in 59 Minutes Scheme, for a total loan amount of up to Rs 10 crore. The MSME loan interest rate is based on several variables, including the type of business, the owner’s credit history, and the loan’s approved duration.

Who Should Apply?

To qualify for and take advantage of this government programme, small and medium-sized businesses with an immediate capital need of less than Rs 10 crore and a desire to pay a lower interest rate (as low as 8% in some situations) should fill out an application.

4. Credit Link Capital Subsidy Scheme (CLCSS) for Technology Upgradation

To help micro, small, and medium-sized enterprises (MSMEs) upgrade their technology, the government has implemented the Credit Linked Capital Subsidy Scheme (CLCSS). To upgrade their technology, MSMEs can receive a 15% subsidy under this programme for any new investment up to Rs. 1 crore.

This government program’s name reflects its purpose to help small and medium-sized enterprises easily adopt cutting-edge technologies so they can maintain their competitive edge in both domestic and international markets. 

To help small and medium-sized businesses employ cutting-edge technology, the government offers MSME loans of up to Rs 15 lakh, or around 15% of the total cost of an upgrade.

Who should apply?

This central government loan scheme is a great chance for businesses in the manufacturing, fabrication, textile, and equipment-using sectors to upgrade to newer, more effective machinery and equipment.

5. SIDBI Make In India Loan For Enterprises (SMILE)

To further the goals of the Indian government’s “Make in India” campaign and encourage micro, small, and medium-sized enterprises (MSMEs) to join in, SIDBI created the Make In India Loan For Enterprises (SMILE) programme. 

This plan offers a forgiving loan with equity-like characteristics. It also offers term loans with lenient conditions to help small and medium-sized businesses achieve the necessary debt-equity ratio. Furthermore, it offers MSME business loans so that they can take advantage of expansion opportunities.

Existing businesses planning to modernise, upgrade their technology, or undertake similar projects to expand their operations will also be eligible for assistance under this plan. A primary goal of this programme is to assist MSMEs (small businesses) in obtaining funding.

Who should apply?

Startups in both the manufacturing and service industries can apply under this scheme. Existing businesses that are expanding to take advantage of new opportunities are welcome to apply for this programme. 

The Final Say

Small firms can apply for MSME loans to help cover unexpected costs. These loans fuel economic expansion and facilitate inclusionary economic growth. Small and medium-sized enterprise (SME) loans are typically approved for shorter terms and offer more repayment options. When it comes to these types of loans, FlexiLoan is unrivalled. In case of inquiries on MSME loans, business loan or any other type of loan, please don’t hesitate to get in touch with us. Feel free to use our Business loan emi calculator to calculate your EMI’s.

FAQs

Q. 1 Which bank offers MSME loans?

MSME loans are offered by all public and private sector banks. They have a specific target prescribed by RBI to meet in sanctioning these MSME loans.

Q. 2 Can I get an MSME loan without furnishing collateral?

Yes, you can get a loan upto INR 10 lakhs without furnishing collateral.

Q. 3 Can I apply for MSME Loan online?

Yes, if your lending bank provides an online application facility, you can apply for the same online.

Q. 4 Apart from the loan, can I get more support from the banks for MSME?

Yes, the banks would educate you about

a. Financial management

b. Rural self-employment

Q. 5 What if I fail to repay the MSME Loan on time?

In that case, you have to pay compound interest to the bank at the rate of 3x as decided by RBI.

Check out more Government Schemes 

Savings Schemes in India

PMEGP Scheme/Loan

SATAT Scheme

Startup India Scheme

Jan Samarth Scheme

Cent Kalyani Scheme

RoDTEP Scheme

Stand Up India Scheme

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