written by | March 23, 2022

How Beneficial Are MSME Samriddhi Loans?

MSME Samriddhi loan is very easy to obtain if you buy a new business or expand it. Through this loan, you can achieve multiple benefits as you get funds to meet working capital requirements, salaries and other monthly/daily expenses, buy machinery and equipment, buy raw metals and manage cash flows. You enjoy several MSME business loan choices at extremely low-interest rates and highly flexible tenures.

Did you know?

Indian Government changed MSME's definition in May 2020. Now, MSME's definition is the same for both Services and Manufacturing Enterprises. The criterion has not changed to investment and annual turnover from just investment.

There's also an increase in the limit of each segment, letting more enterprises reap the benefits of the MSME bank loan schemes. It is all about numerous financial institutions offering unsecured loans to help entrepreneurs meet expense-related issues. Next, we will discuss the features and advantages of MSME loans.

Advantages and Features of MSME Loan

With an MSME Credit, medium-sized business owners can expand their businesses with loan money or even establish another division of their existing business. Some benefits and advantages are associated with the MSME Loan:

  • Companies can upgrade their technology to meet small-business sector needs through MSME credit.
  • MSME loans allow a large credit flow in the MSME sector.
  • MSME loans are a full training and development program for small-scale industries through skills and training programs.
  • The term for an MSME loan can be for a maximum of 5 years.

MSME loans are available to all loan borrowers of small-scale industries like Partnership Firms, Sole Proprietorship Firms, Public Limited Companies, and Private Limited Companies.

Additionally, manufacturing/service-based micro/small businesses are eligible, excepting retail traders, education institutions, training establishments and self-help Groups.

MSME loans are available as unsecured and secured loans. The selection is contingent on the borrower's financial capacity and the applicable conditions and terms of the lender. You can also know about the other loan types available in India. We have comprehensively discussed the pros and features. Next, we’ll discuss how you can utilise the MSME loans.

Also Read: A Detailed Overview About MSME SAMADHAAN

How to Use MSME Loans

You can use MSME Loans for numerous instances like 

  • Business Cash Flow management
  • Enhance the business
  • To tackle working capital needs.
  • New/innovative business expansion
  • Development of inventory (stock or raw materials).
  • Installation of new machinery/equipment
  • Procurement of vehicles, business tools, and various other fixed assets

To apply for MSME loans, you should consider one essential step: understanding comprehensively about eligibility criteria.

Eligibility Criteria for Availing MSME Loans

Various loan providers set some business loan eligibility criteria for companies/individuals to claim an MSME loan. Here are those basic requirements:

  • The basic income of your business should be a minimum of ₹2 lakhs per year. One year turnover should exceed ₹10 lakhs, and the company should profit in the last two years.
  • Private companies sole proprietors engaged in the services, manufacturing, or trading sector qualify for an SME loan.
  • While applying for the MSME loans, the applicant should age between 22-55 years.
  • Minimum five years of experience and three years of continuous engagement in the business is mandatory.

The applicant should register the business in the Udyaan portal as an MSME and possess an MSME registration certificate. 

After understanding the eligibility criteria, next, you should understand how you can apply for an MSME loan. 

How to Apply for an MSME Loan?

To apply for MSME loans online, you'll have to perform these steps:

  • Log in to your loan provider's website, where you'll find the "MSME loan online apply" form. Fill in all the details accurately if you don't want any unwanted delay in the loan processing. 
  • The loan provider bank will arrange a special representative to contact you shortly and explain all combinations and permutations related to your loan. You can seek help finding the best options and configurations of your loan through that representative. 
  • Post your eligibility determination. You'll need to submit your vital documents for further verification. You can scan and submit these documents online. 

If you believe in the offline process, you can either submit the physical copies of your documents in the branch or, in a few cases, the representative will gather the same from your home only. 

  • The verification specialist team will verify the documents you've submitted and finalise whether to give you a loan or not. 
  • Bank will share with you the loan agreement after the approval. 
  • Once you sign the agreement, the bank will disburse loan funds to your account within two working days.

Comparison of MSME Loan Interest Rate in 2022

Lenders

Interest Rate

Bank of Baroda (BOB)

As per your Business’s Profile

PNB Business Loan

As per your Business’s Profile

HDB Financial Services Ltd.

22% forth

IDFC First Bank

20% forth

SMEcorner

20% forth

RBL Bank

19% forth

Tata Capital Finance

18% forth

NeoGrowth Finance

18% forth

Indifi Finance

18% forth

Hero Fincorp

18% forth

IIFL Finance

18% forth

ZipLoan

18% forth

Lendingkart Finance

18% forth

ICICI Bank

18% forth

Fullerton Finance

17% forth

FlexiLoans

16% forth

HDFC Bank

15.50% forth

Axis Bank

15% forth

Kotak Mahindra Bank

14% forth

SBI

8.30% forth (SME Loan)

MSME Loan – Features

Interest Rate: Depending on your business requirements and profile 

Repayment Tenure: 1- 5 years

Subsidy: Offered by a few financial Institutions

Loan Amount: No minimum limit to borrow. ₹75 lakhs is the maximum limit, which can be extended according to the business requirements (only in Unsecured Business Loan)

Collateral: According to the bank's sole discretion

Loan Cancellation Charges: Depends upon the bank 

Foreclosure Charges: 0-5% of the principal amount

Processing Fee: 0-4% of the total loan amount

Part-payment Charges: 0-4% of the principal amount

Credit Facilities: Bill discounting, Bill of Purchase, Letter of Credit, Working Capital Loan, Merchant Cash Advance, Overdraft, Cash Credit, etc.

Also Read: MSME Minister launches SAMARTH to promote Women Entrepreneurship

Good Credit Scores Can Help

After reading about how to apply for an MSME loan, now comes the credit card score. Credit scores are an automatic number by credit bureaus that summarise your loan or credit card payment record. It indicates the probability of getting credit or loans from different financial institutions. A credit score higher than 750 is generally considered to be good. However, even if the credit rating is at least 650, still you can get a loan.

Maintaining a high credit score is always a benefit to the approval of loans. Also, it ensures that your requirements for your business are met on time regardless of the size or type of your company or business. Individuals, self-employed professionals, entrepreneurs, small/medium enterprises (SMEs) and large enterprises need to maintain a strong credit score of a minimum of 750 to qualify for loans with low-interest rates, with additional advantages.

Individuals who are new to credit or traders, retailers and manufacturers who don't use any funding, such as credit cards or loans, are advised to begin using at least one funding source to increase the credit rating. So, you should create and maintain an excellent credit score to reap the advantages.

3 Types of Working Capital MSME Loans

Various non-fund and fund-based working capital loans make it easier for small- and mid-sized businesses to fund their day-to-day activities. The different kinds of work capital loans are:

Overdraft Facility for Current Accounts

The current account can handle unlimited transactions, and overdraft facilities allow businesses to overdraw until a sanctioned limit. 

Cash Credit Loan

Enterprises can take advantage of an approved cash credit limit to cover their seasonal, urgent, and urgent working capital financing requirements.

Bills Discounting

In urgent liquidity needs cases, MSMEs can discount the number of their outstanding bills through banks, which will require a percentage of commission or discount. Banks will pay for the invoice early, and after the time, they give it to the company's customer.

Documents Needed to Apply for an MSME Loan

Here are the documents you should have to claim an MSME loan:

  • Your PAN card and company are desirable for loan applications.
  • Your company's audited financial statements, demonstrating last two years profit.
  • Bank/income statements added to form 16.
  • Your business' address proof.
  • Previous two years Income tax returns of your company.

Choosing the right provider and submitting all necessary documents will shield your finances from loan terms. 

Conclusion

The online MSME loan options have truly made life easy! If you want to go with minimum interest rates, you should choose SBI, Kotak Mahindra, or Axis bank MSME loan schemes.

Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Is a good credit score mandatory to avail MSME loan?

Ans:

Yes, a Healthy credit score for MSME loans will always bring you extra benefits while availing them.

Q: Are there any subsidies for MSME loans?

Ans:

An upfront subsidy which is equalling 15% on institutional credit of up to ₹1 crore (₹15 lakhs subsidy cap) for recognised subsectors/technologies/sectors.

Q: What are the age eligibility criteria for MSME?

Ans:

To apply for an MSME loan, you must meet the age criteria set by lenders, which is between 25-55 years.

Q: What Is the MSME loan interest rate?

Ans:

Medium, small and micro enterprises can enjoy MSME loans for setting up enterprises or expanding. 7.65% p.a is the start point of the interest rates. The amount sanctioned under such loans ranges from ₹50,000 to a few crores.

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