MSME Loan Scheme: Explore Benefits, Eligibility and Steps to Apply

Types of MSME loans

MSME loans are designed to support the financial needs of micro, small and medium-sized enterprises. These loans are available in various forms, including Term Loans, Flexi Term loans and Flexi Hybrid Loans.
A Term Loan is a fixed loan amount that is disbursed to the borrower and the repayment is typically made in equal instalments over a set period of time. This type of loan is ideal for businesses looking for financing over a long period. With Bajaj Finance, the loan type comes with two repayment options: fixed monthly payments for the full term or up to 36 months of interest-only payments, followed by interest and principal payments.

A Flexi Term loan allows you to withdraw funds as needed from a pre-set sanction, which can help to manage cash flows more effectively. With this loan, you only pay interest on the amount withdrawn.

A Flexi Hybrid loan combines the features of Term Loans and Flexi Term loans. You get a pre-set loan amount and you can withdraw funds from this whenever needed. In addition, this loan variant comes with the option to pay just interest as EMIs for the early part of the tenure.

Overall, MSME loans are an effective way for small businesses to obtain the financing they need to grow and expand. By providing flexible repayment options and fast access to funds, these loans can help businesses of all sizes achieve their financial goals.

Features of MSME Loan

Here are some key features of MSME loans:

• Flexible loan amounts: MSME loans offer varying loan amounts to suit the diverse needs of small and medium enterprises, ranging from a few lakhs to several crores, depending on business requirements.
• Competitive interest rates: These loans typically come with competitive interest rates, making borrowing more affordable for small businesses, helping them manage repayments effectively.
• Quick disbursal: MSME loans often feature a fast approval and disbursal process, ensuring that businesses get timely access to funds when needed for operations or expansion.
• Minimal documentation: The application process usually requires minimal documentation, reducing the administrative burden on business owners.
• Flexible repayment tenure: Repayment terms are generally flexible, with tenures ranging from a few months to several years, allowing businesses to choose a term that aligns with their cash flow.

Eligibility criteria for MSME/ SME loan

Any business owner can apply for this loan, as long as they meet the following eligibility parameters:

Eligibility criteria

• Nationality: Indian
• Business vintage: At least 3 years
• CIBIL Score: 685 or higher
• Work status: Self-employed
• Age: 18 to 80*

*You should be 80 or younger at the end of the loan tenure.

Documents needed for MSME Loan

Here's a table outlining the documents needed for an MSME (Micro, Small, and Medium Enterprises) loan:

Eligible entities that can apply for MSME loans

You, as an individual, startup, MSME, business owner, or self-employed professional, along with women entrepreneurs and individuals from SC/ST/OBC categories, are eligible for MSME loans. Entities such as Private or Public Limited Companies, Sole Proprietorships, Partnership Firms, and Limited Liability Partnerships (LLPs) operating in trading, services, and manufacturing sectors can also apply.

Purpose of MSME Loans

MSME Loans serve various business needs:

1. Start or expand your enterprise.
2. Procure plant & machinery, including testing or lab equipment, electrical appliances, etc.
3. Construct buildings or acquire land/commercial properties.
4. Introduce new product lines or settle supplier bills through Bill Discounting.
5. Fulfil working capital needs like salaries, raw material purchase, inventory stocking, and marketing.
6. Invest in machinery/equipment or vehicle fleets.
7. Obtain additional funds for diverse business requirements.

MSME Loan Schemes initiated by the Govt. of India

Government-initiated MSME loan schemes offer financial support to Micro, Small, and Medium Enterprises (MSMEs). These initiatives aim to facilitate easy access to credit and promote entrepreneurship among MSMEs. Some popular schemes include:

• CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
• CLCSS: Credit Linked Capital Subsidy Scheme
• Credit Guarantee Scheme
• Pradhan Mantri Mudra Yojana
• National Small Industries Corporation (NSIC)) Subsidy
• PMEGP: The Prime Minister Employment Generation Programme
• PMRY: Prime Minister’s Rozgar Yojana
• PSB Loans in 59 minutes under SIDBI
• Startup India Scheme

Things to know before applying for MSME loan

Before applying for an MSME loan, consider your business needs, financial goals, and why you require the loan. Here are 5 things to keep in mind before applying:

• Understand your business requirements: Before applying for an MSME loan, assess your business needs, financial goals, and the purpose of the loan. This clarity will streamline your loan proposal.
• Choose the right lender: Look for a lender offering flexible terms and conditions tailored to your business needs. Opt for simplicity and flexibility in the application process.
• Apply online: Utilize the convenience of online application processes. Applying for an MSME loan online is quick, with minimal documentation and speedy fund disbursal.
• Prepare necessary documentation: Ensure you have all required documents ready for submission. Familiarize yourself with the lender's documentation process to expedite your application.
• Await sanction and disbursement: Upon submission and verification of your documents, the lender will sanction your loan based on your repayment capacity. Once approved, funds will be disbursed directly to your business account for immediate use.

Collateral for MSME loan

Collateral for MSME loans typically includes tangible assets like property, land, machinery, or equipment. Lenders may also accept financial assets like fixed deposits, insurance policies, or stocks as collateral. The value of the collateral is assessed based on factors such as market value, depreciation, and future earning potential. Providing collateral reduces the lender's risk, thereby increasing the chances of loan approval and favourable terms. However, it's essential for borrowers to carefully consider the implications of pledging collateral, as defaulting on the loan could lead to the loss of these assets.

How to calculate MSME / SME loans EMI

EMI (Equated Monthly Installment) for MSME or SME loans can be calculated using mathematical formulas or online EMI calculators provided by banks and financial institutions. The EMI calculation considers factors such as loan amount, interest rate, and loan tenure. The formula for EMI calculation involves the principal amount, interest rate, and loan tenure. It's essential to consider the impact of interest rates on EMI and choose a repayment tenure that aligns with the business's cash flow. Regularly paying EMIs on time helps maintain a good credit history and ensures smooth loan repayment.

The formula to calculate the Equated Monthly Installment (EMI) for an MSME or SME loan is:

EMI = P*r/1-(1+r)^{-n}

Where:

P = Principal loan amount

R = Monthly interest rate (annual interest rate divided by 12 and expressed as a decimal)

N = Loan tenure in months

This formula calculates the fixed monthly installment amount that includes both principal and interest components. It's essential to ensure that the values used in the formula are consistent with the terms of the loan agreement.

MSME / SME loans fees and interest rates

How to calculate MSME / SME loans EMI?

EMI (Equated Monthly Installment) for MSME or SME loans can be calculated using mathematical formulas or online EMI calculators provided by banks and financial institutions. The EMI calculation considers factors such as loan amount, interest rate, and loan tenure. The formula for EMI calculation involves the principal amount, interest rate, and loan tenure. It's essential to consider the impact of interest rates on EMI and choose a repayment tenure that aligns with the business's cash flow. Regularly paying EMIs on time helps maintain a good credit history and ensures smooth loan repayment.

The formula to calculate the Equated Monthly Installment (EMI) for an MSME or SME loan is:

EMI = P*r/1-(1+r)^{-n}

Where:

P  = Principal loan amount

R  = Monthly interest rate (annual interest rate divided by 12 and expressed as a decimal)

N  = Loan tenure in months

This formula calculates the fixed monthly installment amount that includes both principal and interest components. It's essential to ensure that the values used in the formula are consistent with the terms of the loan agreement.

How to Apply for MSME Loan Online

To apply for an MSME loan online, follow these steps:

Step 1: Visit your preferred bank's official website.

Step 2: Log in if you're an existing customer; if not, create an account.

Step 3: Fill in mandatory details, including personal, income, and business information, and loan requirements.

Step 4: Submit the loan application form online.

Step 5: Upload mandatory documents, such as personal, business, and income proofs.

Step 6: A bank executive will contact you for further procedures.

Step 7: After document verification, the loan is approved.

Step 8: The approved funds are disbursed to your business account within the specified timeframe.

Do's and Don'ts when applying for an MSME loan online

Here are some do's and don'ts when applying for an MSME loan online:

Do's:

• Research and compare loan options from different lenders to find the best fit for your business needs.
• Ensure your business documents and financial statements are up-to-date and accurate before applying.
• Use secure and reputable online platforms or official lender websites to submit your loan application.
• Provide complete and truthful information in your application to avoid delays or rejection.
• Review the terms and conditions, including interest rates, fees, and repayment terms, before accepting the loan offer.
• Keep track of your application status and respond promptly to any requests for additional information or documentation.
• Maintain regular communication with the lender throughout the application process to address any queries or concerns.

Don'ts:

• Don't provide false or misleading information in your loan application, as it can lead to rejection or legal consequences.
• Avoid applying for multiple loans simultaneously, as it can negatively impact your credit score and loan eligibility.
• Don't overlook the fine print of the loan agreement, including hidden fees or penalties.
• Avoid sharing sensitive personal or financial information on unsecured or suspicious websites.
• Don't ignore communications from the lender or delay in providing requested documents, as it can delay the loan approval process.
• Refrain from taking on more debt than your business can comfortably repay, as it can strain your finances and creditworthiness.
• Don't hesitate to seek clarification from the lender if you have any doubts or concerns about the loan terms or application process.