Enterprises with an annual turnover of more than INR 250 crores or an investment in plant and machinery exceeding INR 50 crores cannot apply for an MSME registration.
How to Apply for MSME Loan from Government?
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MSMEs play an unparalleled role in the economy of the country. As per the latest data released by the government, MSME-related products consisted of around 45.56% of the All-India Exports in 2023-24.
However, these enterprises often face cash crunch and require loans for various purposes from time to time.
Given the significant role the MSME sector plays in the output of the country and the employment generated, the government has started various schemes for MSMEs to provide them with easier access to credit.
Let us then know and understand the various loan schemes implemented for MSMEs, their eligibility, and how to apply for MSME loan from Government.
In addition, let us glance through the MSME loans provided by the leading banks in India and their interest rates in this informative article.
Also Read: Challenges faced by MSME sector in India
Table of Contents
MSME Loan Schemes by the Government of India
The Government of India implements various schemes aimed at supporting the MSME sector by providing easy MSME Loans. Some of the famous schemes implemented by the government are:
1. Pradhan Mantri Mudra Yojana (PMMY)
Launched by the Honourable Prime Minister in 2015, PMMY provides collateral-free loans upto INR 10 lakhs to non-corporate micro-enterprises in the non-farm sector. Under the scheme, MSME Loans (called Mudra Loans) are disbursed through Scheduled Commercial Banks, Non-Banking Financial Companies (NBFCs), Regional Rural Banks (RRBs), MicroFinance Institutions (MFIs), etc.
Eligibility Criteria
The following entity types are eligible to get a Mudra loan under the PMMY scheme:
- Individuals
- Proprietary concern
- Partnership Firm
- Private Ltd. Company
- Public Company
- Any other legal forms
In addition, the borrower must not have defaulted on any loan in the past and should have a satisfactory credit history. The financial institutions may put forth additional requirements while sanctioning an MSME loan under the Mudra Scheme.
2. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a credit guarantee fund scheme aimed to help Micro, Small, and Medium Enterprises (MSMEs) avail a credit facility from formal channels of financing. Under the scheme, a credit guarantee trust provides a guarantee cover to Member Lending Institutions (MLIs) on loans disbursed to eligible borrowers.
Eligibility Criteria
All new and existing MSMEs established under the MSMED Act, 2006 and engaged in the manufacturing or services sector are eligible for a credit guarantee on Business loans.
However, Self-help groups (SHGs) and businesses involved in agricultural activities are not eligible under the scheme.
Also Read: MSME Classification Explained: Criteria and Tax Benefits
3. Prime Minister’s Employment Generation Programme (PMEGP)
The Prime Minister’s Employment Generation Programme (PMEGP) is a subsidy scheme implemented by the Khadi and Village Industries Commission (KVIC) on the national level. The scheme aims to empower entrepreneurs by providing subsidies on MSME loans availed under the aegis of the scheme. The subsidies can range from 15% to 35% of the cost of the project, depending upon the location of the beneficiary.
Eligibility Criteria
Individuals above 18 years of age are eligible under the PMEGP scheme.
However, individuals must possess an 8th pass certificate for projects costing above INR 10 lakhs in the manufacturing sector and project costs above INR 5 lakhs in the services sector.
However, units that have availed benefits of a scheme by the Government of India or the State government are ineligible for a subsidy under the scheme.
4. Credit Linked Capital Subsidy Scheme (CLCSS)
The CLCSS scheme aims to improve efficiency in the MSME sector by providing subsidies on credit facilities taken for technological upgradation in the specified 51 subsectors or a credit facility granted for the approved products.
Eligibility Criteria
The following entities functioning in the SSI sector and possessing a valid UAM/UDYAM certificate are eligible under the scheme:
- Proprietorships
- Partnership firms
- Cooperative societies
- Private Limited Companies
- Public limited companies
5. MSME Business Loan for Startups in 59 Minutes
MSME Business Loan for Startups in 59 Minutes is a scheme run by the SIDBI for the credit facilitation of term loans or working capital loans of upto INR 5 crore. The scheme aims to make the process of getting an MSME loan hassle-free by simply uploading documents on the official website and getting loan approval within 59 minutes.
Eligibility Criteria
Enterprises classified as MSMEs and possessing specified documents are eligible to get an MSME loan under the loan scheme.
Also Read: Top 15+ MSME Schemes to Empower Small Business India
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How to apply for MSME loan from Government
The steps to apply for an MSME loan from the government vary depending upon the type of scheme a business is applying under. The process of applying for a credit facility under different schemes is as such:
1. Pradhan Mantri Mudra Yojana (PMMY)
The steps to apply for a Mudra loan under the PMMY scheme are as follows:
Step 1: Borrowers can visit the authorised bank, NBFC, or approved microfinance institutions and fill out the application form for a Mudra loan.
Step 2: The lending institution then may ask you for relevant documents, including your MSME registration (UDYAM certificate) while sanctioning an MSME Loan.
Step 3: Once the documents are verified, the loan application would be approved and the the bank/NBFC will credit the loan amount in your account.
Some lenders have also made the process of getting a MUDRA loan online, with various banks like the HDFC Bank, State Bank of India, and Axis Bank among others digitally sanctioning Mudra loans.
2. Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)
The process to apply for an MSME loan under the CGTMSE scheme is as follows:
Step 1: Research which financial institutions offer Business loans under the CGTMSE scheme.
Step 2: Once you have decided which financial institution you want to approach, apply for an MSME loan under the CGTMSE guarantee coverage.
Step 3: Once the lender verifies that you’re eligible for the scheme and have the required documentation, the lender will check your creditworthiness and approve your loan.
Step 4: After your loan is approved by the financial institution, it will apply for the guarantee cover for the sanctioned loan, for which you will have to pay the Annual Guarantee Fee, which in turn would be paid by the lender to the trust for the guarantee cover.
Also Read: What is MSME? MSME full form, Benefits and Udyam Registration
3. Prime Minister’s Employment Generation Programme (PMEGP)
To apply for an MSME loan under the Prime Minister’s Employment Generation Programme (PMEGP), follow these steps:
Step 1: Eligible individuals can submit their application for financial assistance under the scheme on the official web portal of PMEGP handled by KVIC.
Step 2: The beneficiary of the scheme then can take a print out of the application and submit it to the respective authorities in the state along with other documents required for the government assistance.
Step 3: Once your application is accepted, you would be provided government assistance based upon your beneficiary category and location and the rest of the cost of the project would be provided as a term loan or working capital loan from authorised financial institutions.
Otherwise, State or Divisional Directors of KVIC publish local advertisements inviting entrepreneurs to set up micro units under the PMEGP scheme.
4. Credit Linked Capital Subsidy Scheme (CLCSS)
MSEs wanting to avail a term loan under the Credit Linked Capital Subsidy Scheme (CLCSS) can follow these steps:
Step 1: Apply for subsidy under the CLCSS through Primary Lending Institutions (PLIs).
Step 2: The Lending Institution then uploads the application through the Online Application and Tracking System to the nodal agency, which in turn forwards the same to the DC (MSME) for the subsidy under the scheme.
Step 3: Once the application is accepted and given the funds are available, the funds are then provided to the nodal agency which in turn provides it to the lending institution with which the MSE holds an account.
5. MSME Business Loan for Startups in 59 Minutes
You can get an MSME Loan under the ‘MSME Business Loan for Startups in 59 Minutes’ through the following steps:
Step 1: Visit the official website of ‘PSB Loans in 59 Minutes’ and register using mobile number and email address.
Step 2: Create a password for future logins and then enter the ‘Business Loan’ section.
Step 3: Provide the GST details of your business, ITR in XML format, and Bank Statements in PDF format.
Step 4: Provide the details sought and select the financial institution and the loan product.
Step 5: Once the loan is approved, a digital letter is issued to the borrower on their registered email address.
How To Apply for an Udyam Registration Certificate
MSME loans from Financial Institutions (Banks, NBFCs, etc.)
Various banks offer loans specifically catering to Micro, Small, and Medium Enterprises to bridge the credit gap in the MSME sector. To avail an MSME loan from leading banks at attractive interest rates, the existing businesses must have a good credit score. Check your credit score here.
The interest rate on MSME loans offered by leading banks in India are:
1. HDFC Bank: Starting from10% and going upto 22.5% pa.
2. State Bank of India: Interest rate linked to MCLR/EBLR.
3. Punjab National Bank: Annual Percentage Rate (APR) starting from 9.40% for a loan upto INR 5 lakhs and going upto 14.94% for a maximum loan of INR 5 crores (for credit rating B3 and below).
4. ICICI Bank: Starting from 16% pa.
5. Indian Bank: Linked to MCLR/TBLR/Repo Rate.
Also Read: MSME Advantages and Disadvantages in India
MSME Loan Interest Rates from Leading Banks
Apart from the Business loans provided under various MSME schemes by the government, various institutions offer MSME loans for manufacturing and services enterprises to bring them under the ambit of institutional credit, some of which include:
- Scheduled Commercial Banks
- Non banking financial companies
- Regional Rural Banks
- Micro Finance Institutions
- Select Regional Rural Banks.
- Small Finance Banks.
- National Small Industries Corporation through Banks.
Small Industries Development Bank of India (SIDBI) through Private and Public Sector Banks
Conclusion
The importance of Micro, Small, and Medium Enterprises can be gauged from the number of loan schemes implemented by financial institutions apart from the government. Apart from banks, other lending institutions like RRBs and NBFCs play a significant role to provide credit to MSMEs at affordable rates.
However, the primary factors that determine the cost of borrowing for MSMEs is the repayment tenure of the loan, and the interest rates offered. Thus, we have provided in this article the interest rates offered by leading banks in India for MSME loans, so businesses can access all the relevant information at one place.
FAQs
Who are eligible for MSME loans?
Micro, Small, and Medium Enterprises are eligible for MSME loans.
Who is eligible for MSME classification in 2024?
Enterprises with an annual turnover below INR 250 crores, and an investment in plant and machinery below INR 50 crore are eligible to be classified as either Micro, Small, and Medium sized Enterprises.
How do I claim MSME subsidy?
To claim an MSME subsidy under any MSME loan scheme, it is important to have an UDYAM certificate or another equivalent proof of business.
Who Cannot apply for MSME?
Which bank is good for MSME loan?
Banks like the ICICI Bank, HDFC Bank, and Axis Bank among other banks are considered reputable for collateral free MSME loans.
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