written by | May 12, 2022

How to Make an Application for an MSME Loan?

Entrepreneurship is the lifeline of the economy of our country. Micro, small and medium-sized enterprises (MSME) are at their heart. So how to apply for an MSME loan? MSME loans are offered at competitive interest rates and a wide range of repayment options to suit your needs. The MSME loan application online is a quick and easy way to seek investment and technological development. They account for about 24.6% of our country's gross domestic product (GDP), second only to agriculture in terms of employment. They also account for approximately 24.6% of our country's total employment. These loans are made available by some financial institutions in combination with a variety of collateral choices from which the borrower may choose.

In terms of contribution to our economy, MSMEs are essential. In today's highly competitive company climate, obtaining loan funding may be beneficial to them to upgrade operations, capitalise on opportunities, and ensure their long-term success. In addition, a portion of the funds made available through the MSME loan may be utilised to fulfil working capital needs.

Did you know?

The interest rate on an MSME loan may vary depending on the company's needs and range from provider to provider.

MSME and MSME Loans

As defined by the Micro, Small, and Medium-Sized Enterprises Development Act 2006, MSMEs are medium-sized firms or small companies. These firms or companies are involved in producing or processing consumer goods. Entrepreneurs who own or operate small and medium-sized businesses (SMEs) are the pillars and chief support of the Indian economy. 

For a business to qualify as a micro-enterprise, it must have a capital investment of less than ₹ 1 crore and annual revenue of up to ₹ 5 crores to be considered one. For purposes of the Indian government's definition, a small business is defined as one that has an investment of fewer than ₹ 10 crores and revenue of up to ₹ 50 crores. A medium company is defined as having an investment of fewer than ₹ 50 crores and revenue of up to ₹ 250 crores.

Also Read: How to Complete Udyam Registration Online for MSME’s?

An MSME loan registration can be done through the Udyaan site. This is to get cash or funds for the development of their operations or to satisfy their working capital requirements. It is a credit facility accessible to small and medium-sized organisations (SMEs), individuals, start-ups, and other businesses. Again, this loan is for company development and satisfying working capital requirements.

Advantages of an MSME Loan

Every small business needs financial assistance at some point. The following are some of the reasons why you may want to consider taking out an MSME loan to meet your financial obligations:

  • In cases if the loan amount is less than ₹ 50 lakhs, loan providers realise the urgency with which you want financing. They make every effort possible to ensure the handling of your loan application, and funds are delivered as promptly and easily as is reasonable.
  • Nowadays, the vast majority of well-known loan providers provide the option of applying online. This removes the hassle of needless paperwork. Instead, log into your supplier's website, and fill out the relevant information. Then, after submitting the appropriate paperwork, take advantage of bespoke repayment plans tailored to your borrowing needs.
  • An MSME loan application is a straightforward and trouble-free procedure. This loan is issued in a short period, and the number of papers necessary is minimal. There is also online account access, which enables you to see your account statement and loan data while on the go.
  • Take advantage of a favourable repayment term that may be adjusted to match your specific requirements and run anywhere from 12 to 60 months, depending on your circumstances. You may also opt to file for bankruptcy without incurring any extra costs.
  • If you operate a small business, you probably don't look forward to transitioning out of the firm's control. However, SMEs' demands are specifically addressed through MSME loans, designed to meet their needs (SMEs). In terms of providing finance to business owners concerned about losing control of their firm, they are an excellent source of capital.

  • A business loan with an interest rate ranging from 17% to 21% is available to small and medium-sized firms (SMEs). In comparison, loans with an interest rate of 11% are available to entrepreneurs. With low-interest rates, MSME loans ensure that only the bare minimum of cash is spent on loan repayment, allowing the leftover funds for other business needs and investments.
  • There is the use of tools such as a business loan eligibility calculator to establish your eligibility and check the paperwork. This may aid you in reevaluating your requirements and better arranging your financial resources.
  • The inability of small businesses to pledge their valuable resources in return for cash, stems from the fact that doing so may have a detrimental impact on their output if anything goes wrong. When the need for money arises, loans to small and medium-sized companies (SMBs) prove a great funding source. 
  • Various government-sponsored programs aid the indigenous sector in India, with a particular emphasis on small and medium-sized businesses (SMEs). The government distributes these loans via a network of banks and non-bank financial entities, which work together to provide the loans (NBFIs). 

The Pradhan Mantri Mudra Yojana program provides collateral-free loans to small and medium-sized enterprises (MSME). These loans are up to ₹ 10 lakhs to small and medium-sized enterprises (SMEs). Some of these programs also provide a moratorium on applications for several months to applicants who meet the requirements. As they go up the development curve, most micro, small, and medium-sized enterprises (MSMEs) need financial assistance. MSME loans provide various benefits to small businesses, including a short processing cycle, the lack of collateral, and the ability to view account information anywhere. Designed to meet the individual needs of small businesses at every stage of their growth, these loans are flexible and adaptable.

Eligibility Criteria to Apply for an MSME Loan

Loan providers have set core business loan eligibility conditions for the MSME loan application. These are the conditions that both individuals and enterprises must satisfy. In addition, you must meet the following basic requirements:

  • To be eligible for a loan, a person must be at least twenty-two years old at the time of application and no more than 65 years old when the loan is due to be returned.
  • All requirements are a minimum yearly basic income of two lakhs, minimum annual sales of ₹ 10 lakhs, and the firm's profitability for at least two years before application.
  • To be eligible for an SME loan, a business must be a small or medium-sized enterprise (SME), including sole proprietorships, partnerships, and corporations engaged in commerce, manufacturing, or providing services. 
  • It is necessary for a firm to be registered on the Udyaan website and to produce a copy of its MSME registration certificate to be classified as an MSME.
  • The candidate must have been actively involved in the company for at least three years and have a minimum of five years of experience in the industry.

Also Read: A Detailed Overview About MSME SAMADHAAN

How to Apply for an MSME Loan?

The method to apply for an MSME loan is as follows:

  • Locate and access the website of your loan provider, where you will complete the application form by accurately entering all of the required information. 
  • An authorised representative from the loan provider will give you all potential permutations. These are associated with your loan and the options that may best fit your requirements.
  • As soon as eligibility verification is completed, you have to submit the documents to the appropriate authorities for verification. If you have any pertinent documents, scan them and send them to the online submission system.
  • You may also go the conventional route and request that the loan provider comes to your location to pick up genuine copies of the relevant papers. 
  • All essential paperwork is collected and organised before being provided to the appropriate team for assessment and approval.
  • If your documents are good to go and your loan application is approved, the loan provider will produce and deliver a loan agreement to you and your creditors. 
  • Following the completion of the agreement, the funds will go to the applicant's account within 48 hours of the agreement's signature.

Documents Required for an MSME Loan

It is important to provide the following documents required for an MSME loan:

  • It is necessary to have the PAN card of the applicant as well as the company that wants to apply for the loan.
  • A copy of the business's and the applicant's identity 
  • The application should include a bank statement and income or earning statements 
  • A company's audited financial records that have generated a profit for at least two year
  • Its income tax filings for the previous two years
  • There is the requirement of form 16.  

These are the MSME loan documents required to apply for an MSME loan online.

Conclusion

Small and medium-sized enterprises (SMEs) play a significant role in determining India's economic growth rate. MSME loans are available as both secured and unprotected financing options. When lenders provide unstructured business loans, they are referred to as collateral-free loans. Moreover, due to its inclusion in the priority sector, the MSME sector is eligible to receive the advantages of priority sector financing. Therefore, it is time to apply for an MSME loan online and get it approved.

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FAQs

Q: What is the UAM?

Ans:

The UAM is a self-declaration form where the MSME certifies its existence, bank account data, promoter/owner details, and other information. The UAM number is free.

Q: What's the MSME cap?

Ans:

  1. Turnover limit for micro-enterprises: Less than ₹ 5 crores
  2. Turnover limit for small enterprises: ₹ 1 crore to ₹ 25 crores 
  3. Turnover limit for Medium Enterprises: ₹ 25 crores to ₹ 250 crores

Q: What is MSME, and what is an MSME loan?

Ans:

MSME stands for micro, small and medium enterprises. The Indian government established it by enacting the Micro, Small and Medium Enterprises Development Act, 2006. This statute defines MSMEs as businesses that process and preserve products and commodities. Therefore, the loan for these enterprises or firms is the MSME loan.

Q: Who governs and regulates MSME firms?

Ans:

The Ministry of Micro, Small, and Medium Enterprise establishes and enforces rules. They also regulate and govern micro, small, and medium enterprises in India.

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