What is MSME Loan - Meaning, Types, Benefits, Eligibility & How to Apply

Explore a wide range of Working Capital and Business Loan offerings. Open a Current Account now

Home

Services

Products

Help

Get App

Micro, Small, and Medium Enterprises (MSMEs) are the backbone of the Indian economy in many ways. To fuel the growth and meet the day-to-day financial needs of MSMEs, from established business owners to entrepreneurs, an MSME Business Loan is available through leading financial institutions like Kotak Mahindra Bank. Let us us explore the MSME loan schemes and their significance, interest rates, eligibility criteria, the types of loans available.

Understanding MSME Business Loans

MSME Business Loans are mostly the main source of finance for micro, small and medium enterprises, covering different types of businesses, including entrepreneurs and established entities. It is a catalyst for growth and development, acting as both a financial bridge and a means to meet working capital requirements.

Business Loans give MSMEs access to capital, enabling them to expand their operations, invest in equipment, manage working capital, and thrive in a competitive market. Various types of loans cater to specific financial requirements, including cash credit loans, short-term unsecured loans, letters of credit facilitating international trade, term loans for long-term investments, secured term loans, and equipment loans to purchase essential assets.

MSME Loan Eligibility Criteria

MSME loan eligibility criteria include the following requirements:

Business Experience: The applicant must have at least 3 years of vintage in the same line of business. Minimum Turnover: The business should have a minimum annual turnover of Rs.40 Lakh.
Profit Generation: The business should have a track record of generating profit for at least one year.
Credit History: A positive credit score is essential, showing responsible financial behaviour and loan repayment capability.
Age of Applicant: The primary applicant should be at least 25 years of age and should not exceed the age of 65 at the time of loan maturity.

Types of MSME Business Loans

MSME loans come in different types to satisfy the fund requirements of various companies. Here are some common types of SME Business Loans.

Working Capital Loan: These loans suit businesses that need daily operating finances. They include salaries, rent, power bills, and warehousing stock.
Cash Credit Loan: Cash Credit Loans offer revolving credit facilities whereby businesses may draw funds on demand to meet working capital requirements.
Short-term Unsecured Loan: It solves short-term financial problems without pledging collateral. It has fast approval and a short payment term, making it suitable for meeting urgent financial obligations.
Letter of Credit: Businesses involved in international transactions sometimes need a letter of credit for easy transactions. It acts as a medium of trust for suppliers.
Term Loan: Term loans are ideal for companies intending to expand their businesses within a period of time period of time and purchase some equipment for later use. These are best for businesses looking to achieve long-term objectives.
Secured Term Loan: Assets such as real estate can be pledged to borrow secured term loans for businesses. These loans come with higher amounts and competitive interest rates.
Equipment Financing: An equipment loan is intended to purchase equipment, automobiles, and other items.

Also Read: Minimum cibil score for business loan

Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE)

This scheme provides credit assurances encouraging financial institutions to offer collateral-free loans to micro and small enterprises.. It empowers MSMEs by mitigating the risk for financial institutions.

How do you Apply for an MSME Business Loan?

Here is the procedure for SMEs to apply for a business loan.

Understand your Business rrequirements: Know the intended use of the loan, be it for expansion, working capital, equipment purchase, etc.
Choose the Right Financial Institution: Identify a reliable financial institution like Kotak Mahindra Bank offering suitable terms. You should consider interest rates, tenure flexibility, and customer care services.
Keep your Documents Ready: Collect business and financial documents to speed up your application.
Apply Online: Leading financial institutions, including Kotak Mahindra Bank, use online platforms, making applying for MSME loans very simple. Ensure you provide the correct details in the online application form.
Sanction and Disbursement: Once your loan is approved, you will get a loan offer with all details, including terms & conditions. The financial institution will transfer the money to your account once you accept the loan offer.

Also Read: Government schemes for business loan

Benefits of MSME Loans

Borrowing MSME Business Loans offers numerous advantages to businesses:

Access to Capital: MSME loans offer financial aid business owners need to manage or expand their business.
Flexible Repayment: These loans have flexible payment plans, which which allows companies to to choose EMIs as per their affordability.
Affordable Interest Rates: MSME loans have attractive interest rates, making them a feasible way of financing.
Collateral-Free Loans: These are unsecured loans; hence, the risk is not directed toward business assets.

Frequently Asked Questions (FAQs)

Q1. What is the maximum loan amount I can apply for as an MSME?

The maximum loan amount offered to an MSME is up to Rs.1 crore without collateral. However, this may vary depending on the type of loan and bank policies.

Q2. Are Government schemes available for MSME Business Loans?

Yes, there are various Government schemes available for MSMEs. One of its examples is CGTMSE.

Q3. How can I improve my chances of loan approval?

To improve your chances of getting an MSME loan approval, submit all the necessary documents correctly and maintain a good credit score.

Q4. What documents are required to apply for an MSME Business Loan?

Documents required for MSME Business Loans include KYC documents such as identity proof, address proof, business ownership and business continuity proof.