Step-by-Step Guide
8 Steps
How to Apply for an MSME Loan in India (Government Schemes)
Complete guide on how to apply for an MSME loan in India. Covers MUDRA loan, CGTMSE scheme, PMEGP, Stand Up India, SIDBI loans, eligibility, documents, interest rates, collateral-free options, and government business loan schemes for 2026.
Quick Overview
Estimated Cost
₹500
Time Required
15 to 30 Days
Total Steps
8 Steps
What You'll Need
Documents Required
- Udyam Registration Certificate (MSME certificate)
- PAN card of the business entity and the proprietor or directors
- Aadhaar card of the proprietor, partners, or directors
- Business registration document (Certificate of Incorporation, Partnership Deed, Shop Act License, or GST Certificate)
- GST registration certificate (GSTIN)
- Bank account statements for the last 12 months
- Income Tax Returns (ITR) for the last 2 to 3 years
- Audited or provisional financial statements (balance sheet, profit and loss)
- Detailed project report or business plan with cost estimates and revenue projections
- Quotations for machinery, equipment, or working capital items to be financed
- Passport-size photographs of all promoters or directors
- Address proof of business premises (rent agreement, utility bill, or property papers)
- Collateral documents (property papers, if applicable) or CGTMSE application form for collateral-free loans
Tools & Prerequisites
- Udyam Registration portal (udyamregistration.gov.in) for MSME certificate
- MUDRA loan portal (mudra.org.in) for Pradhan Mantri MUDRA Yojana applications
- PMEGP portal (kviconline.gov.in) for Prime Minister Employment Generation Programme applications
- Bank's online loan application portal or nearest bank branch
- CGTMSE portal (cgtmse.in) for collateral-free guarantee scheme information
- CA or financial advisor for preparing project reports and financial projections
Access to affordable credit remains one of the biggest challenges for micro, small, and medium enterprises in India. While MSMEs contribute nearly 30 percent of the GDP and 45 percent of manufacturing output, a significant credit gap persists. To address this, the Government of India has launched several loan schemes with subsidised interest rates, collateral-free options, and simplified processes to make financing more accessible for small businesses.
This guide covers all the major MSME loan schemes available in India, explains the eligibility criteria and application process for each, and provides practical tips to improve your chances of getting your loan sanctioned. Whether you are starting a new business, expanding an existing one, or need working capital to manage cash flow, this comprehensive guide will help you find the right loan scheme and apply for it successfully.
MSME Classification in India (2026 Revised Criteria)
Before applying for any MSME loan, confirm that your business qualifies as an MSME under the current classification criteria:
| Category | Investment in Plant and Machinery | Annual Turnover |
|---|---|---|
| Micro Enterprise | Up to 1 crore rupees | Up to 5 crore rupees |
| Small Enterprise | Up to 10 crore rupees | Up to 50 crore rupees |
| Medium Enterprise | Up to 50 crore rupees | Up to 250 crore rupees |
Both criteria (investment and turnover) must be met simultaneously. The classification applies to manufacturing and service enterprises equally. If you have not registered as an MSME yet, complete your MSME Registration (Udyam Registration) first, as it is a prerequisite for most government loan schemes.
Major Government MSME Loan Schemes
1. Pradhan Mantri MUDRA Yojana (PMMY)
MUDRA (Micro Units Development and Refinance Agency) loans are the most popular MSME loan scheme in India, providing collateral-free loans to micro and small enterprises.
| Category | Loan Amount | Target Borrower |
|---|---|---|
| Shishu | Up to 50,000 rupees | New and startup-stage businesses |
| Kishore | 50,001 to 5 lakh rupees | Growing businesses with some track record |
| Tarun | 5,00,001 to 20 lakh rupees | Established businesses seeking expansion capital |
- No collateral or guarantee required
- Available at all commercial banks, RRBs, small finance banks, NBFCs, and MFIs
- No processing fee for Shishu category
- Interest rates: 7.30 to 14 percent per annum (varies by bank and category)
- Repayment period: 3 to 5 years
- Can be used for working capital and term loan requirements
If you are a first-time borrower with no credit history, start with a MUDRA Shishu loan of up to 50,000 rupees. It has the easiest approval process with zero processing fee. Use it to build a repayment track record, and then apply for a Kishore or Tarun loan for larger amounts.
2. CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises)
CGTMSE is not a direct lending scheme but a guarantee scheme that enables banks to lend to MSMEs without collateral. The trust guarantees a portion of the loan amount, removing the collateral barrier.
- Guarantee coverage for loans up to 5 crore rupees without collateral
- Guarantee covers 75 to 85 percent of the sanctioned amount
- Higher coverage (85 percent) for micro enterprises, women entrepreneurs, and North Eastern Region
- Available through all member lending institutions (banks, NBFCs, SFBs)
- Annual guarantee fee: 0.37 to 2 percent depending on loan category
- Works with both term loans and working capital facilities
3. Prime Minister's Employment Generation Programme (PMEGP)
PMEGP is a credit-linked subsidy scheme for setting up new enterprises in the manufacturing and service sectors.
- Maximum project cost: 50 lakh rupees (manufacturing), 20 lakh rupees (services)
- Government subsidy: 15 to 35 percent of the project cost
- Beneficiary contribution: 5 percent (special category) or 10 percent (general category)
- Special categories include SC, ST, OBC, women, minorities, ex-servicemen, physically disabled, NER residents, and transgenders
- Managed by KVIC (Khadi and Village Industries Commission)
- Available for new enterprises only (not for existing businesses or expansion)
- Age limit: Applicant must be 18 years or above
- Education: Minimum 8th pass for projects above 10 lakh (manufacturing) or 5 lakh (services)
The subsidy amount depends on the category of the beneficiary and the location (urban or rural). For example, a woman entrepreneur setting up a manufacturing unit in a rural area with a project cost of 25 lakh rupees would receive a 35 percent subsidy of 8.75 lakh rupees, make an own contribution of 1.25 lakh rupees (5 percent), and receive a bank loan of 15 lakh rupees for the balance.
4. Stand Up India Scheme
Stand Up India is designed to promote entrepreneurship among SC/ST communities and women by providing bank loans for greenfield enterprises.
- Loan amount: 10 lakh to 1 crore rupees
- Exclusively for SC/ST and women entrepreneurs
- For setting up new (greenfield) enterprises in manufacturing, services, trading, or agriculture-allied activities
- Each bank branch must extend at least 2 loans under this scheme (one to SC/ST and one to a woman)
- Loan covers up to 75 percent of the project cost (borrower contributes 10 percent, convergence with other schemes for remaining 15 percent)
- Repayment period: up to 7 years with moratorium of up to 18 months
- Apply through standupmitra.in portal or bank branch
5. SIDBI Direct Lending
SIDBI (Small Industries Development Bank of India) provides direct loans to MSMEs for growth capital, equipment financing, and working capital:
- Term loans for machinery, equipment, and expansion
- Working capital facilities for operational needs
- Receivable financing through TReDS platform
- Competitive interest rates (typically linked to SIDBI base rate)
- Faster processing compared to commercial banks
- Loans available from 10 lakh to several crore rupees
How to Choose the Right MSME Loan Scheme
| Your Situation | Recommended Scheme | Key Benefit |
|---|---|---|
| New business, small loan needed (under 50,000) | MUDRA Shishu | Zero processing fee, easy approval |
| New manufacturing or service unit | PMEGP | 15 to 35 percent government subsidy |
| SC/ST or woman starting a new business | Stand Up India | Dedicated scheme, 10 lakh to 1 crore |
| Existing business, need up to 20 lakh without collateral | MUDRA Tarun | No collateral, quick processing |
| Existing business, need 20 lakh to 5 crore without collateral | Bank loan with CGTMSE cover | Collateral-free guarantee up to 5 crore |
| Established MSME, need growth capital | SIDBI direct lending or bank term loan | Competitive rates, flexible tenure |
Step-by-Step Application Process
Step 1: Get Your Udyam Registration
If you have not already registered, visit udyamregistration.gov.in and complete the Udyam Registration process. It is a free, online, Aadhaar-based process that takes about 15 minutes. You will receive your Udyam Registration Number (URN) and certificate immediately. This certificate is required for most government loan schemes and gives you access to priority sector lending benefits.
Step 2: Prepare Your Project Report
A well-prepared project report is the single most important document for your loan application. It should include:
- Executive summary: Brief overview of the business, promoter background, and loan requirement
- Business description: What you make or sell, your USP, and target market
- Market analysis: Industry overview, demand assessment, competition analysis, and market size
- Project details: Location, infrastructure, machinery and equipment with cost estimates and quotations
- Financial projections: Revenue forecast, cost structure, profit and loss projection, and cash flow statement for 3 to 5 years
- Means of finance: How the project will be funded (own contribution, bank loan, subsidy)
- Repayment schedule: How you plan to repay the loan from business cash flows
- SWOT analysis: Strengths, weaknesses, opportunities, and threats for the business
For loan amounts above 5 lakh rupees, consider getting your project report prepared or reviewed by a Chartered Accountant. Banks are more likely to approve loans when the project report is professionally prepared with realistic financial projections. Overly optimistic projections can actually hurt your application as banks view them as unrealistic.
Step 3: Gather Documents
Prepare all required documents in physical and digital format:
| Category | Documents Required |
|---|---|
| Identity proof | PAN card, Aadhaar card of promoter(s) and directors |
| Business proof | Udyam Certificate, GST Certificate, Certificate of Incorporation or Partnership Deed |
| Financial documents | Bank statements (12 months), ITR (2 to 3 years), audited financial statements |
| Project related | Project report, quotations for machinery or equipment, business plan |
| Property documents | Rent agreement or property papers for business premises, collateral documents (if applicable) |
| Photographs | Passport-size photos of all promoters or directors |
Step 4: Choose Your Bank and Apply
Select a bank based on the following factors:
- Existing banking relationship (banks prefer lending to existing customers with good account conduct)
- Interest rates offered for the specific scheme
- Processing speed and branch accessibility
- Specific scheme availability (not all banks offer all schemes)
Submit the application either online through the bank's website, at the bank branch, or through the scheme-specific portal (standupmitra.in for Stand Up India, kviconline.gov.in for PMEGP).
Step 5: Follow Up and Respond to Queries
After submission, stay in regular contact with the bank officer processing your application. Respond promptly to any document requests or clarifications. Banks may conduct a physical inspection of your business premises or project site. Be prepared to explain your business plan and financial projections in person if required.
Interest Rates Comparison (Indicative for 2026)
| Scheme or Lender | Interest Rate Range | Processing Fee |
|---|---|---|
| MUDRA Shishu | 7.30 to 10 percent | Nil |
| MUDRA Kishore | 8.60 to 12 percent | 0.5 to 1 percent |
| MUDRA Tarun | 9 to 14 percent | 0.5 to 1 percent |
| SBI MSME Loan | 8.50 to 11.50 percent | 0.5 to 1 percent |
| SIDBI Direct | 8 to 11 percent | 0.50 percent |
| Stand Up India | Base rate + 3 percent (max) | As per bank norms |
| NBFC MSME Loans | 12 to 24 percent | 1 to 3 percent |
MSMEs with Udyam Registration can avail a 2 percent interest subvention on loans up to 1 crore rupees under the government's Interest Subvention Scheme. This effectively reduces your borrowing cost by 2 percentage points. The subvention is credited directly to the loan account by the lending institution after government reimbursement.
Tips to Improve Your Loan Approval Chances
- Maintain a good CIBIL score: Pay all existing EMIs, credit card bills, and utility bills on time. A score above 750 significantly improves approval chances
- Keep clean bank account conduct: Avoid bounced cheques, maintain minimum balance, and show regular business transactions in your account
- File ITR regularly: Banks check ITR for income verification. Consistent ITR filing with growing income demonstrates financial discipline
- Build a relationship with your bank: Open a current account, route business transactions through it, and build a relationship with the branch manager before applying
- Start small and build up: For first-time borrowers, start with a smaller loan (MUDRA Shishu), repay it successfully, and then apply for larger amounts
- Prepare a realistic project report: Avoid inflated projections. Banks value realistic, achievable financial plans over overly optimistic ones
- Get all registrations in place: GST Registration, Udyam Registration, and Startup India Registration (if applicable) should all be completed before applying
- Reduce existing debt: Pay down existing loans or credit card balances to improve your debt-to-income ratio before applying for new credit
After Loan Sanction: Best Practices
- Use the loan amount strictly for the sanctioned purpose (diversion of funds is a serious offence)
- Maintain all records of expenditure including invoices, receipts, and bank statements
- Set up automatic EMI payments through ECS or NACH to avoid missing due dates
- For working capital facilities (CC/OD), maintain adequate turnover in the account and submit stock and debtor statements as required
- Inform the bank immediately if you face any business difficulties that may affect repayment
- Submit audited financial statements to the bank annually as per the loan terms
- Renew working capital limits before the expiry date to avoid account becoming irregular
Conclusion
MSME loans are more accessible today than ever before, thanks to multiple government schemes designed to make credit available without excessive collateral requirements or high interest rates. The key is to choose the right scheme based on your business stage and requirements, prepare a thorough project report, maintain strong financial discipline, and apply with complete documentation.
Start with the easiest option that matches your profile. If you are a new business, consider PMEGP for the subsidy benefit or MUDRA Shishu to build your credit history. If you are an existing business looking for growth capital, CGTMSE-backed loans or SIDBI direct lending offer the best combination of loan amount and terms. For SC/ST and women entrepreneurs, the Stand Up India scheme provides dedicated support with favourable terms.
Need help getting your business registered and compliant before applying for an MSME loan? Whether it is MSME/Udyam Registration, company registration, GST registration, or accounting and financial documentation, IncorpX can help you get all the prerequisites in order.
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Frequently Asked Questions
What is an MSME loan?
An MSME loan is a financial product designed specifically for Micro, Small, and Medium Enterprises to fund their business needs including starting a new venture, expanding operations, purchasing machinery, managing working capital, or upgrading technology. MSME loans are offered by banks, NBFCs, and government financial institutions at preferential interest rates and with easier eligibility criteria compared to regular commercial loans.
What is Udyam Registration and is it required for MSME loans?
Udyam Registration is the official MSME registration process of the Government of India under the MSMED Act 2006. While not always mandatory for all MSME loans, having an Udyam Registration Certificate significantly improves your loan eligibility, gives access to government subsidy schemes like PMEGP and MUDRA, qualifies you for collateral-free loans under CGTMSE, and ensures priority sector lending benefits from banks.
What is the MUDRA loan scheme?
The Pradhan Mantri MUDRA Yojana (PMMY) provides loans up to 20 lakh rupees to micro and small enterprises through banks, NBFCs, and MFIs without collateral. MUDRA loans are available in three categories: Shishu (up to 50,000 rupees for startup stage), Kishore (50,001 to 5 lakh rupees for growth stage), and Tarun (5,00,001 to 20 lakh rupees for established businesses). No processing fee is charged for Shishu loans.
What is the interest rate on MUDRA loans?
MUDRA loan interest rates vary by the lending institution and borrower profile. Typically, interest rates range from 7.30 to 12 percent per annum for Shishu loans and 8.60 to 14 percent for Kishore and Tarun loans. The rates are linked to the bank's MCLR (Marginal Cost of Funds Based Lending Rate) or RLLR (Repo Linked Lending Rate). Government does not fix the interest rate; each bank sets its own rate within RBI guidelines.
What is the CGTMSE scheme?
The Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) is a government scheme that provides collateral-free credit guarantee to micro and small enterprises. Under CGTMSE, banks can lend up to 5 crore rupees without requiring any collateral or third-party guarantee. The guarantee covers up to 75 to 85 percent of the loan amount (up to 85 percent for micro enterprises, women entrepreneurs, and enterprises in the North Eastern Region).
What is the PMEGP scheme?
The Prime Minister's Employment Generation Programme (PMEGP) is a government subsidy scheme for setting up new micro enterprises in manufacturing and service sectors. Under PMEGP, the government provides a margin money subsidy of 15 to 35 percent of the project cost (15 percent for general category in urban areas, up to 35 percent for special category including SC/ST/women/minorities in rural areas). Maximum project cost is 50 lakh rupees for manufacturing and 20 lakh rupees for services.
What is the Stand Up India scheme?
Stand Up India provides bank loans between 10 lakh and 1 crore rupees to SC/ST and women entrepreneurs for setting up greenfield (new) enterprises in manufacturing, services, trading, or agriculture-allied activities. Each bank branch must grant at least one loan to an SC/ST borrower and one to a woman borrower. The loan covers up to 75 percent of the project cost, with a repayment period of up to 7 years and a moratorium of up to 18 months.
What are the eligibility criteria for MSME loans?
General eligibility criteria include: the business should be classified as an MSME (investment up to 50 crore and turnover up to 250 crore), the applicant should be an Indian citizen above 18 years, the business should have valid registrations (GST, Udyam, PAN), the applicant should have a CIBIL score of 650 or above (varies by bank), the business should be operational for at least 6 months to 2 years (for term loans; PMEGP is for new units), and the business should have a viable project report or business plan.
What is the minimum CIBIL score required for MSME loans?
Most banks require a minimum CIBIL score of 650 to 700 for MSME loan approval. However, some government schemes like MUDRA Shishu loans have relaxed credit score requirements. A CIBIL score above 750 significantly improves your chances of approval and may help you negotiate better interest rates. If your CIBIL score is below the threshold, work on improving it by clearing existing debts and maintaining regular repayment before applying.
Can I get an MSME loan without collateral?
Yes, several government schemes offer collateral-free MSME loans. MUDRA loans up to 20 lakh rupees require no collateral. CGTMSE provides collateral-free guarantee for loans up to 5 crore rupees. Stand Up India loans do not require collateral for manufacturing and service enterprises. PMEGP loans up to the scheme limits are collateral-free with CGTMSE cover. For loans above these limits, banks typically require collateral in the form of property, fixed deposits, or other assets.
What documents are required for an MSME loan?
Standard documents include: Udyam Registration Certificate, PAN card (business and individual), Aadhaar card, GST certificate, business registration documents (COI, partnership deed, or shop act license), bank statements for 12 months, ITR for 2 to 3 years, audited financial statements, project report or business plan, quotations for machinery or equipment, address proof of business premises, passport photographs, and KYC documents of all promoters or directors.
How long does it take to get an MSME loan sanctioned?
The loan processing and sanction timeline varies by scheme and bank. MUDRA Shishu loans can be sanctioned within 7 to 10 working days. MUDRA Kishore and Tarun loans take 10 to 21 working days. CGTMSE-backed loans take 15 to 30 days. PMEGP loans take 30 to 60 days due to the additional subsidy approval process through KVIC. Stand Up India loans take 21 to 45 days. The timeline depends on document completeness, bank processing speed, and loan amount.
What can MSME loans be used for?
MSME loans can be used for: purchasing land and building for business (term loan), buying machinery and equipment (term loan), working capital for raw materials, inventory, and operational expenses (CC/OD), technology upgradation and modernisation, business expansion and new branch setup, marketing and export activities, refinancing existing high-cost loans, and meeting short-term cash flow gaps. The specific permitted end-use depends on the loan scheme and sanction terms.
What is the maximum loan amount available under MSME schemes?
Maximum loan amounts vary by scheme: MUDRA provides up to 20 lakh rupees, CGTMSE provides guarantee coverage for loans up to 5 crore rupees, PMEGP covers projects up to 50 lakh (manufacturing) or 20 lakh (services), Stand Up India provides 10 lakh to 1 crore rupees. Beyond these scheme limits, banks offer regular MSME term loans and working capital limits up to several crore rupees based on the business financials, collateral, and creditworthiness.
What is the repayment period for MSME loans?
Repayment periods vary: MUDRA loans have a tenure of 3 to 5 years. CGTMSE-backed term loans can have a tenure of up to 7 years. Stand Up India loans have a repayment period of up to 7 years with a moratorium of up to 18 months. PMEGP loans are repaid over 3 to 7 years. Regular MSME term loans from banks can have tenures ranging from 1 to 15 years depending on the loan amount and purpose. Working capital facilities are typically renewed annually.
What is a working capital loan for MSMEs?
A working capital loan provides funds for the day-to-day operational expenses of a business including purchasing raw materials, paying salaries, managing inventory, and funding receivables. Working capital finance for MSMEs is typically provided as cash credit (CC) facility, overdraft (OD) facility, or short-term working capital loans. The limit is assessed based on the business's annual turnover, stock and debtor levels, and operating cycle. Interest is charged only on the amount utilised.
What is a term loan for MSMEs?
A term loan is a lump sum loan disbursed for a specific purpose like purchasing machinery, equipment, land, building, or for business expansion. The borrower repays the loan in fixed monthly instalments (EMIs) over a defined period (tenure). Term loans for MSMEs can be secured (backed by collateral) or unsecured (under CGTMSE). Interest rates are fixed or floating, and the loan tenure is determined based on the asset's useful life and the borrower's repayment capacity.
Can a new business apply for an MSME loan?
Yes, new businesses can apply for MSME loans under specific schemes. PMEGP is specifically designed for new manufacturing and service enterprises. MUDRA Shishu loans are available for startup-stage businesses. Stand Up India is for greenfield enterprises only. For regular bank loans, most banks require the business to be operational for at least 6 months to 3 years. New businesses should prepare a detailed project report showing market analysis, revenue projections, and repayment capacity.
What is the MSME loan subsidy under PMEGP?
Under PMEGP, the government provides a margin money subsidy on the project cost. The subsidy rates are: General category in urban areas: 15 percent, General category in rural areas: 25 percent, Special category (SC/ST/OBC/Women/Minorities/Ex-servicemen/Physically disabled/NER/Hill Border areas/Transgenders) in urban areas: 25 percent, Special category in rural areas: 35 percent. The beneficiary must contribute 5 to 10 percent as own contribution. The balance is provided as a bank loan.
How to apply for a MUDRA loan online?
To apply for a MUDRA loan online, visit the website of your preferred bank (SBI, PNB, BOB, etc.) and navigate to the MSME or MUDRA loan section. Fill in the online application form with your business details, loan amount, and purpose. Upload the required documents. Alternatively, visit mudra.org.in for information and then apply at the nearest branch of any commercial bank, RRB, small finance bank, or NBFC. Some banks also process MUDRA applications through the Udyam Assist platform.
What are the common reasons for MSME loan rejection?
Common reasons include: low CIBIL score (below 650), incomplete or incorrect documentation, weak business plan or project report, insufficient business vintage (less than required operational history), high existing debt-to-income ratio, irregular income tax return filing, negative bank account conduct (bounced cheques, overdraft limit excesses), mismatch between loan purpose and business activity, and defaulting on existing loans.
What is the interest subvention scheme for MSMEs?
The Interest Subvention Scheme for MSMEs provides a 2 percent interest subsidy on incremental or fresh term loans and working capital for MSMEs. Under this scheme, the government reimburses 2 percent of the interest charged by banks directly, reducing the effective borrowing cost for the MSME. The scheme is available for loans up to 1 crore rupees and covers both manufacturing and service sector MSMEs registered on the Udyam portal.
Can women entrepreneurs get special MSME loan benefits?
Yes, women entrepreneurs get several special benefits in MSME lending. Stand Up India reserves one loan per bank branch specifically for women. PMEGP provides higher subsidy (25 to 35 percent vs 15 to 25 percent for general category). CGTMSE provides higher guarantee coverage (up to 85 percent) for women-owned micro enterprises. Many banks offer women-specific MSME loan products with reduced interest rates (0.25 to 0.50 percent concession), lower processing fees, and relaxed collateral requirements.
What is the role of SIDBI in MSME lending?
SIDBI (Small Industries Development Bank of India) is the principal financial institution for the promotion, financing, and development of MSMEs in India. SIDBI provides direct loans to MSMEs for growth capital, equipment financing, and working capital. It also operates the CGTMSE scheme, provides refinancing to banks for MSME lending, runs the SIDBI Cluster Development Programme, and manages the Fund of Funds for startups. SIDBI loans typically have competitive interest rates and flexible repayment terms.
What is the difference between MUDRA and CGTMSE?
MUDRA provides loans up to 20 lakh rupees through PMMY for micro enterprises without collateral. CGTMSE provides a guarantee cover for collateral-free loans up to 5 crore rupees through member banks. MUDRA is a lending scheme where specific banks disburse loans under the PMMY banner. CGTMSE is a guarantee scheme that covers the bank's risk when lending without collateral. Both can work together as MUDRA loans can also have CGTMSE guarantee coverage.
How to improve chances of MSME loan approval?
To improve your chances: maintain a CIBIL score above 750, keep clean bank account conduct with no bounced cheques, file ITR regularly and show growing income, get Udyam Registration before applying, prepare a detailed and realistic project report, ensure all documents are complete and current, apply through a bank where you have an existing relationship, start with a smaller loan amount and build a track record, reduce existing debt obligations, and consider applying under specific government schemes that match your profile.
What is the processing fee for MSME loans?
Processing fees vary by bank and scheme. MUDRA Shishu loans have zero processing fee. MUDRA Kishore and Tarun loans have processing fees of 0.5 to 1 percent. Regular MSME term loans have processing fees of 0.5 to 2 percent. CGTMSE charges an annual guarantee fee of 0.37 to 2 percent of the guaranteed amount (depending on the loan category). PMEGP has no processing fee. Some banks waive or reduce processing fees for women and SC/ST entrepreneurs.
Can partnership firms and LLPs apply for MSME loans?
Yes, partnership firms and LLPs are eligible for all MSME loan schemes provided they meet the MSME classification criteria. The partnership deed or LLP agreement must be submitted as part of the application. All partners must provide their KYC documents and sign the loan agreement. Banks assess the combined creditworthiness of all partners and the firm's financial performance.
What is the Emergency Credit Line Guarantee Scheme (ECLGS)?
ECLGS was launched in 2020 as part of the Atmanirbhar Bharat package to provide emergency working capital credit to MSMEs affected by the COVID-19 pandemic. The scheme provides 100 percent guarantee coverage on additional working capital loans of up to 20 percent of the outstanding loan amount. ECLGS has been extended multiple times with expanded coverage. Check the current status of ECLGS availability with your bank as the scheme may be modified or closed.
What is equipment finance for MSMEs?
Equipment finance or machinery loan is a specific type of MSME term loan used to purchase plant, machinery, and equipment for manufacturing or service operations. Banks finance up to 75 to 90 percent of the equipment cost. The equipment itself serves as collateral (hypothecation). Interest rates are typically lower than unsecured loans (8 to 12 percent). Tenure matches the useful life of the equipment (3 to 10 years). Quotations from the equipment supplier are required with the loan application.
Can I prepay an MSME loan without penalty?
Under RBI guidelines, banks cannot charge prepayment penalties on floating rate MSME loans. For fixed rate loans, banks may charge a prepayment penalty of 1 to 3 percent of the prepaid amount. However, many banks have waived prepayment charges for MSME loans under competitive pressure. Check the prepayment terms in your loan sanction letter before making prepayments. Prepaying your loan early saves interest costs and improves your credit profile for future borrowing.
What is TReDS and how does it help MSMEs?
TReDS (Trade Receivables Discounting System) is an electronic platform for financing MSME trade receivables (invoices). MSMEs can upload their invoices on TReDS, and multiple financiers (banks and NBFCs) bid to finance those invoices at competitive rates. The MSME gets early payment (within 2 to 3 days) without waiting for the buyer's credit period. TReDS platforms include RXIL, M1Xchange, and Invoicemart. Companies with a turnover above 500 crore rupees are mandated to register on TReDS.
How does the MSME Registration help in getting loans?
MSME or Udyam Registration helps in multiple ways: it is a prerequisite for many government loan schemes (PMEGP, MUDRA, CGTMSE), it qualifies the business for priority sector lending from banks, it enables interest subvention benefits (2 percent interest subsidy), it provides exemption from collateral requirements under CGTMSE, it gives access to the MSME SAMADHAN portal for delayed payment resolution, and banks give preferential treatment to Udyam-registered businesses in loan processing.
What is the loan tenure for PMEGP?
PMEGP loans have a repayment period of 3 to 7 years including a moratorium period of 6 to 18 months. During the moratorium, no EMI payments are required. The repayment schedule is structured based on the cash flow pattern of the business. For manufacturing units, the tenure is typically longer (5 to 7 years) due to the higher project cost. For service enterprises, it is usually 3 to 5 years.
Can I apply for multiple MSME loan schemes simultaneously?
You can have multiple loans from different schemes as long as they are for different purposes and you have the repayment capacity. For example, you can have a MUDRA loan for working capital and a separate term loan for machinery purchase. However, you cannot apply for the same loan from multiple banks simultaneously (shopping for loans is flagged by banks through CIBIL enquiry records). PMEGP subsidy is available only for new units and cannot be combined with other subsidy schemes.
What is the role of a CA in MSME loan applications?
A Chartered Accountant plays an important role in MSME loan applications by preparing the audited financial statements required by banks, creating projected financial statements and cash flow estimates for the project report, certifying the net worth and turnover of the business, preparing CA certificates required by some schemes, and helping structure the loan application to present the business financials in the best possible light. A Virtual CFO service can also help manage the ongoing financial reporting required by lenders.
What happens if I default on an MSME loan?
If you default on an MSME loan, the bank first sends reminders and notices. After 90 days of non-payment, the account is classified as NPA (Non-Performing Asset). The bank can then: initiate recovery proceedings under SARFAESI Act (for secured loans), invoke the CGTMSE guarantee (for collateral-free loans), file a case in the Debt Recovery Tribunal, report the default to CIBIL (severely damaging your credit score), and in extreme cases, initiate insolvency proceedings. The Insolvency and Bankruptcy Code applies to MSMEs with modified timelines.
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