The Government of India has launched many schemes in the form of loans and subsidies to help and promote individuals in their business ventures. One of them is the MSME loan scheme. Its mission is to finance and support medium-sized, small, and microbusinesses. Do you also want funds from the MSME loan for your startup? Well, this article will help you navigate through it in detail.
In this article, we will discuss the MSME loan scheme, why it was introduced, its benefits, and how to get one for your new business.
What is the MSME loan scheme, and what is its primary objective?
The MSME Ministry of India is an individual body. It has executed and implemented the MSME loan scheme for the betterment of emerging small businesses. This loan system provides unsecured loans to individual, small business units to help them meet their business-related expenses. This is its prime objective.
Not only the government, but private financiers and private banks have also started giving MSME loans to individual, rising businesses. The main differences between government and private MSME loan schemes are the interest rate of the loan and the loan amount.
This loan has self-tailoring features. This means you can get an MSME loan scheme as a short-term loan scheme, a medium-term loan scheme, or a long-term loan scheme. You can take it as a cash credit, letter of credit, working capital loan, etc. You can use this lump sum amount to buy raw materials, use them in transportation, or pay for any services.
What are some of the exclusive benefits of the MSME loan scheme?
Here are some of the exclusive benefits of getting an MSME loan:
- Low rate of interest:
Small and microbusinesses are charged low interest rates by banks. This is to ensure that the minimum amount is spent on repaying the loan and the maximum amount goes into funding the business venture. The rate of interest for MSME loans in India is somewhere in the range of 10 percent to 25 percent per annum, with an exception of 1 to 1.5 percent by some lenders like FlexiLoans and ZipLoan.
MSME loans in India are highly accessible and easy to apply for. The whole process is hassle-free, with serious exemptions. This makes it an ideal loan system with the fewest cons.
It is an unsecured loan system. There is no requirement for collateral, a security deposit, or a guarantor. If you don’t have any of those, you don’t need to worry about your loan getting sanctioned. This decreases the burden on small and microbusinesses. It helps them see beyond this.
- High flexibility:
MSME loan schemes are also a short-term affair. You require them only to cover your short-term requirements. An MSME loan isn’t a long-term commitment. This enables you to easily focus on developing your business.
- The long tenure of repayment:
The tenure of repayment is not fixed for every bank, but it can often be started at 3 years and stretched up to 15 years. This seems like a reasonable amount of time. You can repay your loan within this period in the form of instalments.
- High loan amount:
If you get your MSME loan sanctioned, your loan amount can go up to Rs 50 lakh. You can use this in your business venture. You can use it to buy new types of machinery, and raw materials, expand your manufacturing, hire more workers, and pay for other services.
What is the eligibility to get an MSME loan in the first place?
Here are some of the eligibility requirements to help you get an MSME loan:
- Type of business:
It is the type of business that decides whether you are eligible for MSME loan schemes or not. The types of businesses that are eligible for MSME loans are:
- Manufacturing sector
- Service sector
- Any form of non-farming activity
- Business experience:
In your current business, for which you are applying for the MSME loan, you must have a minimum of one to three years of business experience. This is due to the fact that you must demonstrate to the banks that you have extensive experience in the business venture in question.
- Business turnover:
A business turnover of about 12 lakh rupees per year is the benchmark for an MSME loan. However, it is again very subjective because different banks have different criteria.
- Credit score:
It is a common analogy that a good credit score will increase your chances of settling on a better deal on any type of loan. This stands to be true here also. If your credit score is 750 or more, that is always a plus. This increases your chance of getting a larger loan at a lower rate of interest.
- Clean loan history:
If you have been regular at paying your previous debts, then you are always a way ahead. Banks look for candidates who have a clean track record and who pay their instalments regularly.
The interest rates from the top banks for MSME loan schemes range between 8.5% to 15% per annum. Even some of the popular banks go lower than that with increased tenure of repayment. You should use calculators in this case, where you can spin different loan amounts and interest rates to see what suits you best.
You should focus on improving your credit score, improving your business venture, and increasing your business experience to make a better pitch and get a decent loan.
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