MSME stands for micro, small and medium enterprises, also shortened to SME for small and medium enterprises. However, MSME and SME loans are the same and are given to businesses that fall under these two categories. MSME loans are unsecured loans issued by banks or NBFCs to meet the various business need. Startup owners, small business owners, and women entrepreneurs on a short-term basis often use these loans. The term of MSME / SME loans ranges from lender to lender. There are some minimum eligibility requirements to reduce the risk for lenders.

MSME loan schemes are used by business owners and enterprises to meet their working capital needs. Normally, most of the banks and NBFCs offer SME and MSME loans without requiring any collateral or any security from the borrowers.

MSME Loan Classification 

Classification of MSMEs criteria is now uniform for Manufacturing and Services Enterprises. The investment limit for the classification of MSME units has also increased by the Government of India. As a result, more firms and enterprises can now avail MSME schemes. The criteria for MSME classification have been changed from Investment to Investment and Annual Turnover.

MSME (Micro, Small & Medium Enterprises) are classified in two ways:

  • Manufacturing Enterprises involved in the manufacture or production of goods. If the industry plans on extending plant and machinery in the process of value addition to the final product.
  • Service Enterprises interested in providing or rendering service

Let’s understand the MSME classification in a better way.

MSME Classification 
Investment in Plant & Machinery or EquipmentAnnual Turnover
MicroNot more than Rs. 1 CroreNot more than Rs. 5 Crore
SmallNot more than Rs. 10 CroreNot more than Rs. 50 Crore
MediumNot more than Rs. 50 CroreNot more than Rs. 250 Crore
What are the Eligibility Criteria for MSME Loan?
  • Age: Minimum 18 years to Maximum 65 years
  • Eligible Entities: Individuals, SMEs, MSMEs, business owners, women entrepreneurs, self-employed professionals, people falling under SC/ST/OBC category, Private or Public Limited, Sole Proprietorship, Partnership Firm, Limited Liability Partnership engaged only in trading services and manufacturing sectors
  • Business Turnover: Min. Rs. 10 lakh for existing enterprises
  • Good repayment history.
  • CIBIL score above 700
What are the Documents Required for MSME Business Loan Application?
  • Self-drafted Business Plan/Project Report
  • Duly filled Application form.
  •  Passport-sized photographs
  • KYC documents of applicant and co-applicants that include Passport, Aadhar card, Voter’s ID card, Driving License, PAN Card, and Utility Bills (Telephone, Electricity)
  • Last 12 months’ bank statement
  • Copy of Business Incorporation of Company Establishment
  • Any other document required by the lender
MSME Loans under Government Schemes – 2021

Popular MSME schemes launched under the Ministry of MSME are offered by banks or NBFCs are mentioned below :

  • CGTMSE: Credit Guarantee Fund Trust for Micro and Small Enterprises
  • CLCSS: Credit Linked Capital Subsidy Scheme
  • Credit Guarantee Scheme
  • MUDRA Yojana under PMMY
  • National Small Industries Corporation (NSIC) Subsidy
  • PMEGP: The Prime Minister Employment Generation Programme
  • PMRY: Prime Minister’s Rojgar Yojana
  • PSB Loans in 59 minutes
  • Standup India
  • Startup India
Purpose of MSME Loans
  • Answer working capital requirements
  • For new business development
  • Maintain business cash flow
  • Introduce new equipment or machinery
  • Purchase of raw materials, vehicles, tools, etc
  • Stock up inventory
  • Pay off rent, salaries, hire staff, train staff, etc.