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Loans under MSMEs – Classification & Eligibility

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Micro Small and Medium Enterprises (MSMEs) are establishments that are categorized on the basis of investment made or equipment used. MSME loans are unsecured loans that are offered by banks and NBFCs to small businesses and startups to meet their working capital requirements or boost their cash flow. In this article, we will talk about various MSME loan schemes and other crucial aspects with regards to it.

What are the categories of Micro, Small and Medium Enterprises (MSME)?

Category Manufacturing and Services Sector

 

Micro Enterprises The amount of investment in plant and machinery or equipment does not exceed INR one crore

The turnover must not exceed INR five crores

Small Enterprises The amount of investment in plant and machinery or equipment does not exceed INR10crores

The turnover does not exceed INR 50 crores

Medium Enterprises Investment in plant and machinery or equipment does not exceed INR 50 crores

The turnover does not exceed INR 250 crores

In the later sections of the article, we will talk about some important aspects of MSME loans.

UDYAM MSME Registration

Any business owner who wishes to start a Micro, small or medium enterprise must understand certain aspects of the registration process which is called Udyam MSME Registration.

  • The applicant must file an application for the Udyam registration on the online website/portal.
  • The applicant receives a permanent registration number after registration.
  • Once the form is approved, a certificate is issued to the applicant.
  • The certificate will include a QR code through which necessary details of registration will be available.
  • Renewal of registration is not a requirement.
  • The registration process is free of cost.
  • Only Aadhar card details are required, other details are taken from the Government.

What banks provide MSME loans?

Following are certain banks that provide MSME loans are as follows –

Bank Name Interest Rate Loan amount
Allahabad bank 8.75% – 14.55%  per annum INR 5 crores
Oriental Bank of Commerce At the discretion of the bank Up to Rs.5 crore
Andhra Bank 11.25% – 11.75% per annum Rs.10,000 to INR 5 crore
Central Bank of India 9.75% – 15.10% %  per annum INR 1 lakh onwards
Punjab and Sind Bank 9.95% – 10.5% %  per annum Up to INR1 crore
Punjab National Bank At the discretion of the bank Up to INR 25 crores
State Bank of India 7.95% – 14.1% %  per annum Up to INR 500 crore
Syndicate Bank 8.65% – 12.15% per annum No maximum loan amount
UCO Bank 8.85% – 11.85% %  per annum Up to INR 7.5 crore
Union Bank of India At the discretion of the bank Up to INR 50 crore
United Bank of India 10.25% – 16.25% per annum Up to INR 2 crore

What are the eligibility requirements for MSME loans?

In this section, we will talk about some crucial aspects that must be fulfilled by the applicant before filing an application for MSME loans.

  • The business must be involved in either of the two categories -manufacturing or service sector.
  • The investment limit must be maintained as per the requirements prescribed by the Government.

What documents are required for MSME loans?

Following are certain documents that must be submitted to qualify for loans for MSMEs –

  • Identity proof such as PAN card, Voter’s ID, passport copy etc.
  • Residence proof
  • Address proof of the business
  • The balance sheet for the last three years
  • Income tax returns
  • Sales tax returns
  • Projected balance sheets
  • Project report
  • Copy of the title deeds/lease deeds

What is the process of application for MSME loans?

Filing the application form

Some details that must be filled in the application form are as follows –

  • List of proposed credit facilities
  • Current business activity
  • Date of establishment
  • Current credit facilities
  • Project cost details such as land development, construction of the building, purchase of plant and machinery, purchase of vehicles, etc.
  • Means of finance, which must include the owner’s contribution, unsecured loans, subsidies, and term loans
  • Details of collateral offered and details regarding the third-party guarantee, in case there are any to be mentioned
  • The status of statutory obligations such as registration under Shops and Establishment Act, registration under SSI. Drug license, Sales Tax Return filed, an updated file of the Income Tax Return, and any other dues that is outstanding

Which banks can offer loans to MSMEs?

All domestic scheduled commercial banks (except small finance banks and regional rural banks) and foreign banks that have more than 20 branches allocate 7.5% of their Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet, to the MSME sector.

Classification of MSME loan schemes

The loans provided to the MSMEs are offered by the Government as Government schemes. Some of these schemes are as follows –

MUDRA loan

The Micro Unit Development and Refinance Agency or MUDRA loan were introduced to offer financial support to the small business owners. The maximum loan amount that can be borrowed is INR 10 lakhs.

The eligibility requirements that must be fulfilled by the applicant

Following are the MUDRA loan category –

  • SHISHU category – Loan up to INR 10,000
  • KISHOR category – Loans up to INR 50,000 to INR 5,00,000
  • TARUN category – Loans starting from INR 50,000 to INR 10,00,000

Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE)

This scheme was launched by the Government to establish a strong credit relief system and boost a better credit flow in the MSME sector. As per this scheme, loans are offered to MSMEs without any collateral.

Loan eligibility requirement for CGTMSE

This scheme is offered only to below institutions –

  • Scheduled Commercial Banks
  • Regional Rural Banks (RRBs)
  • National Small Industries Corporation (NSIC)
  • North Eastern Development Finance Corporation (NEDFi)
  • Small Industries Development Bank of India (SIDBI)

Prime Minister’s Employment Generation Programme (PMEGP)

The employment programme is a credit-linked subsidy program. This scheme is linked with two other schemes (Prime Minister’s RojgarYojana and Rural Employment Generation Programme). As per this scheme, the individual must invest around 5 – 10 % of the project cost while the Government grants a subsidy of 15-35% of the project.

Collateral free Scheme launched by the Government during the Pandemic

This scheme is one of the most recent schemes launched by the Government. This scheme is introduced for the MSMEs who are struggling to survive in the coronavirus pandemic. Collateral free loans will be provided of up to 3 lakh crores to businesses who are dealing with a severe cash crunch. The scheme is called the Emergency Credit Line Guarantee Scheme (ECLGS), which is provided by the National Credit Guarantee Trustee Company (NCGTC) to banks, NBFCs and financial institutions.

As per the scheme, MSMEs receive a sanctioned limit of up to 20% of the outstanding loan as on 29 February 2020. All businesses that have outstanding loans in various banks and institutions of up to 25 crores as on 29 February 2020 and if the annual turnover of the company is up to INR 100 crore for FY 2019-2020, the business is eligible for the scheme.

Conclusion

MSME loans are a significant concept and serve several benefits to small businesses. It helps in surviving in the market in better ways by providing financial aid to the business owners. However, the business owners must undertake research various schemes before applying for the one that is the most suitable for their business.

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