The Indian micro, small, and medium enterprises (MSMEs) are among the fastest growing in the entire world. Almost 18.7% increase was witnessed in this sector between 2014 – 15 and 2015 – 16.

Here are five interesting facts about the MSME sector in India.

  1. This sector employs approximately 40% of the total workforce numbering to about six crore employees.
  2. Such businesses contribute roughly 30% of total exports and 45% of domestic manufacturing.
  3. Almost 80% of the Indian industrial outputs are manufactured by the MSMEs that produce over 8,000 products.
  4. Approximately 55.3% of the MSMEs are located in the Indian rural areas and 95% of its output is domestically consumed.
  5. Over 32% of the MSMEs have been in business for more than two decades and about 1.22% units have been around for over five decades.

While the MSMEs are crucial and contributed about 9% to the total Gross Domestic Product (GDP) in 2014, this sector is faced with several challenges. One of the biggest hurdles faced by small and medium enterprises (SMEs) is the lack of capital.

Capital is the lifeline of any business and is required for the smooth functioning of daily operations. The financial institutions understand this need of capital and offer small business loans to help MSMEs and SMEs to grow their operations.

Understanding an MSME loan

Such loans are offered to entrepreneurs to commence a new business or to expand their current operations. Micro enterprises including small production units and service providers may apply for an MSME loan.

Eligibility criteria

Any entrepreneur who is aged between 25 years and 65 years is eligible for the loan. Other criteria include:

  • The business must be stable and growing
  • Should be profitable for at least three previous years
  • Must file income tax returns

The business loan amount available ranges from a minimum of INR 3 lakh to a maximum of INR 50 lakh. It is important that the borrowers provide the lenders with their capability to repay the loan in a timely manner. Lenders offer such loans for a period of one year and three years.

Type of business who may apply for the loan

  • Trusts
  • Sole proprietors
  • Societies
  • Partners of a partnership
  • Private limited companies

Documents needed to apply for the MSME loans

  • Income documents
  • Repayment capacity proof
  • Ownership documents

Features of MSME loans

  • Affordable

The rate of interest on an MSME or an SME loan is affordable and ranges between 18% and 24%. It primarily depends on the profile of the entrepreneurs and the business.

  • Special benefits

Several lenders offer special benefits to women entrepreneurs who meet the eligibility criteria.

  • Unsecured

Unlike home or auto loans, these are available without collateral. This ensures personal assets are not at a risk in case of default or delay. Additionally, lenders offer such facilities without guarantors. MSMEs and SMEs are crucial for the growth of the Indian economy. Financial institutions understand the importance of this sector and offer credit facilities to help them seek funds.