How to Apply for MSME Loan

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How to Apply for MSME Loan

Micro, small and medium enterprises (MSMEs) are the backbone of every economy. They account for more than 60% of all jobs in the world and contribute more than 50% to global GDP.

MSMEs are also responsible for a large chunk of innovation and new business ventures.

Despite their importance, MSMEs face several struggles, including access to capital.

One way MSMEs can get the funding they need is through an MSME loan. An MSME loan is a type of financing specifically for small businesses.

The Indian government offers several programs to help small businesses get access to capital, including the Mudra Loan Yojana and the Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA) loan.

Many financial institutions also offer MSME loans.

What are MSMEs?

According to the Micro, Small and Medium Enterprises Development Act (MSMED) Act, MSMEs are classified as follows:

  • Micro enterprises: Enterprises with up to INR 1 crore investment and a turnover of up to INR 5 crore.
  • Small enterprises: Enterprises with up to INR 10 crore investment and a turnover of up to INR 50 crore.
  • Medium enterprises: Enterprises with up to INR 50 crore investment and a turnover of up to INR 250 crore.

These could be both product-based and service-based businesses.

How does an MSME loan work?

An MSME loan works like any other business loan but is meant for small businesses only.

You can use the funds for a variety of purposes, such as working capital, equipment purchase, expansion, etc.

Most loans have a repayment period of 1-5 years, though this may differ depending on the lender and the purpose of the loan.

What are the benefits of an MSME loan?

There are several benefits of availing of an MSME loan, which include:

1. Easy access to capital: MSME loans give small businesses the opportunity to access capital that they may not have otherwise had. This can be crucial for businesses that are just starting out or looking to expand.

2. Flexible terms: MSME loans often come with flexible repayment terms, which can be helpful for businesses that are going through a slow period.

3. Lower interest rates: Interest rates on MSME loans are usually lower than those of personal loans or credit cards. This makes them more affordable for small businesses.

4. Government support: The Indian government offers several programs to help small businesses get access to capital. These include the Mudra Loan Yojana and the Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA) loan.

5. Collateral-free: Many MSME loans are offered without collateral, which makes them easier to obtain for small businesses.

How to apply for an MSME loan?

You can apply for an MSME loan through a financial institution or the government.

The application process will differ depending on the lender, but you will generally need to provide documents such as your business plan, financial statements, and KYC documents.

Start by analysing your business needs

This is the first step. You need to have a clear understanding of your business needs before you can apply for an MSME loan.

Some things you should consider include the amount of money you need, the purpose of the loan, and how you will use the funds.

You should also have a realistic idea of your ability to repay the loan. This will help you choose the right loan type and terms.

Get your documents in order

Once you have a clear idea of your business needs, you can begin collecting the required documents.

The specific documents you will need will differ depending on the lender, but they will typically include your business plan, financial statements, and KYC documents.

Check for government schemes

The Indian government offers several schemes to help small businesses get access to finance.
These include the Mudra Loan Yojana and the Pradhan Mantri Micro Units Development and Refinance Agency Limited (MUDRA) loan.
You can check if you are eligible for any of these schemes before you apply for an MSME loan.

Compare lenders and terms

Once you have all the required documents, you can begin comparing lenders and loan terms.

There are a number of things you should consider when choosing a lender, such as interest rates, repayment terms, fees, and eligibility criteria.

Submit your application

Once you have chosen a lender, you can begin the application process.

The specific steps will differ depending on the lender, but you will generally need to fill out an online form and submit the required documents.

You will then need to wait for the lender to review your application and make a decision.

If you are approved, the funds will be disbursed to your account and you can start using them for your business.

Make regular repayments

It is important to make regular repayments on your MSME loan to avoid defaulting.

Defaulting on a loan can damage your credit score and make it difficult to get loans in the future.

If you are having trouble making your repayments, you should contact your lender as soon as possible to discuss your options.

Small businesses in India have several options when it comes to obtaining finance. MSME loans are a popular choice because they offer flexible terms and lower interest rates. 


Author : Nivetha

Date     : 21-Jul-2022


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