Summary: Are you wondering what an MSME loan is? In this post, learn about this type of loan and how it differs from business loans. Also, get insights into MSME business loan types, eligible enterprises, and how to apply.
What is an MSME loan ?
MSMEs (micro, small, and medium enterprises) play an important role in India’s economic growth. The Government provides MSME loans to assist MSMEs in growing and succeeding. Small business owners find these loans attractive because they offer low-interest rates and flexible repayment options. In this guide, we will examine MSME loans in detail and how they differ from other business loans.
It is an unsecured loan that banks offer start-ups and micro, small, and medium-sized business owners. Examples of such businesses include departmental stores, restaurants, kirana stores, salons, stationery stores, clothing stores, hardware stores, and small factories.
The simple reason why small businesses should avail of business loans like this is to operate smoothly and expand despite a lack of funding. MSME business loans are for a short period of time, and banks offer flexible repayment options. These loans and their eligibility requirements are different from traditional business loans.
Categories of MSME loans
The Government of India has divided MSMEs into two broad categories – manufacturing enterprises and service enterprises.
Micro-enterprise– Investment is below Rs 1 crore, and turnover is below Rs 5 crores.
Small enterprise– Investment is below Rs 10 crores, and turnover is below Rs 50 crores
Medium-sized enterprise-Investment is below Rs 20 crores, and turnover is below Rs 100 crores
Manufacturing-based and service-based enterprise.
Small businesses can avail of an MSME business loan for the following purposes –
Meeting the need for working capital
Improving the company’s operational efficiency
Market expansion to new and more profitable businesses
Getting cashflow for a business
Acquiring new equipment and machinery
Purchasing properties, vehicles, and other fixed assets for the business
Getting raw materials or stock inventories
What is a business loan?
A business loan is an amount a company or a business owner borrows to meet various costs, such as launching new products or services, buying new equipment, increasing inventories, renting more properties for business, or hiring new employees.
Business loans for sole proprietorship businesses (including business loans for women) are crucial to sustain their operations. These businesses may also apply for home equity lines of credit. Owners of these businesses have the option of borrowing money from a bank.
MSME vs business loan – which one to choose?
The key differences between MSME loans and business loans are outlined in the table below –
MSME loan
Business loan
Ideal for small businesses that seek funding for stability or to buy new machinery, restock raw materials, or add to inventory
Generally available for market expansion, implementing new business strategies, or opening new branches
Eligibility requires a turnover cap of at least Rs 5 crores for micro, Rs 50 crores for small, and Rs 100 crores for medium enterprises
This loan is for non-individuals or entrepreneurs with a minimum turnover of Rs 1 crore
Generally, there are no requirements for collateral to get an MSME loan
Most business loans have no collateral requirements
Tenures for MSME loans extend over 60 months
Tenures for business loans are up to 48 months.
