Introduction: Micro, Small & Medium Enterprises (MSME)
‘MSME,’ a term that all of you might have heard of at least once in a lifetime, was first introduced in the country under the Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. And today, being the backbone of India’s economy, MSMEs or we should say Micro, Small, and Medium Enterprises contribute a whopping 27% to the GDP, which the Indian government seeks to raise to fifty percent. Regulated by the Ministry of Micro, Small, and Medium Enterprises, MSMEs have a massive presence in the service sectors and the manufacturing and processing of goods, that too for both domestic and International markets. For years, the country’s MSMEs have proved themselves highly dynamic and contributed their significant parts to the promotion of earlier under-represented sectors, including khadi, rural, and coir industries.
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To make things better, the credit facility of MSME loans is also there for the entrepreneurs of the country. Its main aim is to provide micro, small, and medium enterprises with the working capital, which can help them acquire new technology, and inventory, pay their workers’ wages, or expand the reach of their business. At present, several institutions are there to offer MSME loans to eligible businesses, and with this article, we are going to share with you how to apply for an MSME loan.
One type of collateral-free loan is an MSME loan, which businesses operating on a small scale, including start-ups, and women entrepreneurs, can avail themselves of. Its objective is to fill the gaps in financing that often act as obstacles to the growth and expansion of micro, small, and medium enterprises in the country. From buying new machinery to the acquisition of land, there are several purposes for which eligible businesses can get credit under MSME loans. Besides helping businesses meet their basic financial needs, MSME loans also promote the country's equitable economic growth.
Purpose of MSME Loans
The financial institutions of the country offer MSME loans for the below-mentioned business-related purposes:-
- To begin a new business venture or expand the existing one.
- To acquire plant and machinery, including furniture, spare equipment, electrical products, testing or lab machines, etc.
- To build or acquire building space, facility, or commercial properties.
- To launch a new range of products or pay the suppliers in form of Bill Discounting
- To fulfill the short-term obligations of a business, such as paying the staff’s salary, buying goods and raw materials, building up inventory, for the purpose of marketing and advertising, etc.
- To purchase new or pre-owned equipment or a fleet of vehicles.
Advantages of MSME Loan
- Easy to Access
What makes MSME loans so famous among the small businesses of the country is their easy accessibility. Any eligible business intending to apply for MSME loan can easily visit a bank, a Non-Banking Financial company, or any government-authorized financial institution for the same. One more good thing about this is the majority of them don’t ask customers to provide collateral in exchange to obtain credit under an MSME loan.
- Lower Rate of Interest
Today, when there’s cutthroat competition in the market, every penny matters for small businesses to move on with their day-to-day operations. The reason for this is simple, the more money they have to invest, the better they can work towards scaling their business activities. MSME loans come with lower rates of interest, which not only offer more affordability to small businesses but also eases the burden on them of repaying a loan.
- Best to Fulfill Short-Term Requirements
Every business venture has both short-term and long-term requirements. The long-term requirements usually include the renovation of business premises or the up gradation of the machinery which can take a massive amount of capital. Whereas, the short-term requirements are of urgent nature, without which a business may not be able to run for a while. They can include working capital shortfalls, paying wages to employees, procuring raw materials, etc. With MSME loans, a business entity can easily deal with its seasonal shortage of cash flow to carry out these requirements and ensure smooth day-to-day operations.
- Quick Disbursal Process
Many people often get frustrated with the long and complicated procedure to get loans but that’s not the case with an MSME loan, which has a very quick disbursal process. To the fact that many financial institutions don’t take more than five to six days to disburse MSME loans. You’d be surprised to know that there is a government scheme named ‘MSME Loan in 59 minutes,’ which can help you obtain credit within only 59 minutes. One of the reasons behind this quick disbursement is that the MSMEs loans don’t require customers to provide collateral, hence avoiding lengthy verification and inspection process.
Key Documents Required to Apply for MSME Loan
- Applicant and Co-applicant’s KYC documents such as Indian Passport, Aadhar Card, Voter’s Identification Card, Driving License, PAN, and utility bills, including telephone and electricity bills.
- PAN of the business.
- Address and vintage proofs of the business, such as rental or lease agreement.
- Business registration certificate
- Proof of Income such as Profit/Loss account and balance sheet copies of the preceding two years
- Proof of securities provided as copies of title deeds
- Income Tax Returns (ITR) of the preceding year.
- Bank statements of the last six months.
- Business Establishment Certificate or Incorporation Letter
- Proof of belonging to SC/ST or OBC category, if applicable.
Eligibility Criteria to Apply For MSME Loan
For Manufacturing Sectors (In Terms of Investment)
- For a ‘Microenterprise, the investment shouldn’t cross Rs.25 lakh
- For a ‘Small’ enterprise, the investment shouldn’t cross Rs.5 Crore
- For a ‘Medium’ enterprise, the investment shouldn’t cross Rs. 10 Crore
For Service Sectors (In Terms of Investment)
- For a ‘Microenterprise, the investment shouldn’t cross Rs.10 lakh
- For a ‘Small’ enterprise, the investment shouldn’t cross Rs.2 Crore
- For a ‘Medium’ enterprise, the investment shouldn’t cross Rs. 5 Crore
The process to Apply for MSME Loan
When it comes to applying for an MSME Loan, an eligible business can do it in two ways. First, if the financial institution, which is offering MSME loans, offers an online credit facility, then you as an applicant can fill out the relevant application form with all the requested information and documents and submit it on the website.
Second, you can go to the nearest branch of that financial institution and get the application form there. After that, all you need to do is fill out and submit the application form, alongside attaching the documents and you’re good to go.
For businesses in the country, an MSME loan acts as a blessing in disguise that can help them achieve great heights of success. With advantages like a quick disbursal process, lower interest rates, and easy accessibility, the micro, small and medium enterprises of the country can make the most out of MSME loans to meet their basic short-term financial requirements and grow their business activities. What’s further better with MSME loans is the majority of the time they don’t require any collateral, hence more feasible for businesses with poor means.
Corpseed ITES is India’s top environmental and business consultancy company and has served more than three thousand businesses. To get any help with the MSME registration process, you can freely contact the experts of Corpseed, who provide their assistance at every stage and can make the entire process a piece of cake for you.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not corpseed, and have not been evaluated by corpseed for accuracy, completeness, or changes in the law.
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