Top Variables That Determine Your Eligibility for An MSME Loan

MSME Loans are lending facilities made accessible to MSMEs, persons, entrepreneurs, and other business enterprises to grow their operations and meet their working capital needs. Banks and non-banking financial companies (NBFCs) offer maximum credit lines of up to Rs. 1 crore (collateral-free loans) with a repayment schedule of up to 5 years. MSME Loan will differ depending on the requirements of the business and from institution to institution. 

MSME Loan for Existing and New Business or Enterprise is a type of credit facility that comes as a Term Loan (short/intermediate/long-term), overdraft, working capital loan, letter of credit, bill discounting, cash credit, and other funding products.

Numerous financial institutions provide MSME Loans to individuals, self-employed professionals, MSMEs, business owners, startups, sole proprietorships, partnership firms, limited liability partnerships, and other entities engaged in money-earning and business activities.

One can use MSME Loans for business expansion, starting a new business, meeting day-to-day business needs, increasing cash flow, purchasing raw materials, purchasing or upgrading equipment/machinery, paying off rent/salary, hiring and training staff, and so on. 

Eligibility Criteria

  • A credit score of 750 or higher
  • Minimum business vintage of one year minimum business turnover of Rs. 12 lakh for existing enterprises (varies by bank)
  • A good repayment history and financial stability

Who is eligible to apply for MSME loans?

  • Individuals, business owners, MSMEs, self-employed professionals, women entrepreneurs, and people from SC/ST/OBC backgrounds are eligible.
  • Private or public limited companies, partnership firms, sole proprietorships, and limited liability partnerships primarily engaged in trading, services, and manufacturing.

Documents Required

  • Passport, Voter’s ID card, Aadhar Card, Driving License, PAN Card, and Utility Bills for applicant and co-applicants (Telephone, Electricity Bills)
  • Company Address and Vintage Proofs
  • Last six months’ bank statement with bank details
  • Business Establishment Certificate or Incorporation Letter
  • Proof of SC/ST or OBC status, if applicable.
  • Any other document required by the NBFC/Bank.

If you have a high credit score, you may be able to obtain a low-interest MSME Loan. 

Learn more about credit scores and their significance in obtaining an MSME Loan.

A credit score is a number that credit bureaus generate that summarises your loan or credit card repayment history. It represents your chances of receiving a loan or credit card from various financial institutions. A credit score of 750 or higher is usually good, but you can still go ahead with an MSME Loan application if your credit score is 650 or higher.

Maintaining a good credit score is always beneficial for loan approval and ensuring that your business requirements are met on time, regardless of type, volume, size, tenure, or business nature. Self-employed professionals, individuals, startups, Small and Medium Enterprises (SMEs), and large enterprises should have a credit score of 750 or higher to qualify for low-interest loans with additional benefits.

People who are new to credit, traders, manufacturers, retailers, or micro-enterprises that do not use any funding such as loans or credit cards should consider using at least one source to improve their credit score. Build and manage a high credit score to reap additional benefits.

MSME – Merged Criteria: Investment & Annual Turnover
Sector/Enterprise Type Micro-Enterprise Small Enterprise Medium Enterprise
Manufacturing & Services Sector, Both Investment less than Rs. 1 crore

Turnover less than Rs. 5 crore

Investment less than Rs. 10 crore

Turnover up to Rs. 50 crore

Investment less than Rs. 50 crore

Turnoverup to Rs. 250 crore

When should you apply for an MSME Loan?

Under the following conditions, you should consider filing an MSME Loan application.

  • You are buying land to start a business
  • You are purchasing a factory
  • You are buying factory supplies like machine equipment etc.
  • You are purchasing raw materials to meet your company’s capital requirements.
  • You want to settle employee wages, bills, and debts
  • You want to expand your business
  • You want to finance for marketing and advertising purposes.

Obtaining an MSME Loan is simple and painless. Most lenders disburse loan funds quickly—as long as all required documentation is in order and you have demonstrated your creditworthiness. There is also little documentation. The processing time is minimal, with some lenders offering approval in as little as 24 hours. Most lenders provide online account access, allowing users access to their loan information. You can also easily track and pay your EMI payments.

Finally, MSME Loans have competitive interest rates, ensuring that the loan gets repaid with the least amount of money possible. It translates into savings when compared to other conservative types of financial products. Furthermore, the majority of MSME Loans do not require collateral. Small businesses generally use the loans for short-term needs. With a short-term payment commitment, you can efficiently manage cash flow and allocate available resources.

Author: Naveen EThis is E.Naveen Kumar full time Content Writer, SEO, Digital marketing Expert, founder of Really enjoying playing cricket at free times. Being a Btech Graduation from Computer Science stream Selected full-time blogging as my Profession.

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