The Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 categorises MSMEs into two classes of business – manufacturing and service. Interestingly, the MSME sector is set as a priority sector by the government; other priority sectors being agriculture, education, housing, etc. Thus, MSME loans fall under priority sector lending and comes with the associated benefits. If you’re thinking of applying for an MSME business loan for your small or medium-sized enterprise, read on to find out the eligibility factors and the application process.

1. What Is an MSME Loan?

An MSME (Micro, Small and Medium Enterprise) loan is an unsecured business loan offered to startups and small businesses meeting the eligibility criteria. MSME loans come with varying repayment tenures and interest rates, which are determined by the loan amount, the applicant’s profile, and the business’ history.

Some financial institutions offer SME loans under the following government schemes –

  • Credit Guarantee Funds Trust for Micro and Small Enterprises (CGTMSE)
  • Prime Minister’s Employment Generation Programme (PMEGP)
  • Micro Unit Development and Refinance Agency (MUDRA Loan)

2. Eligibility Criteria

To apply for an MSME loan, you must be at least 18 years of age. While the exact SME loan eligibility criteria will differ across lenders, the following are typically required –

  • The MSME must be operational in either the manufacturing or service sector
  • The MSME must have a proven business record of more than 2 years
  • The business must not possess a default history
  • The borrower must own the place of business

3. Documents Required

Typically, the following documents are required to apply for a small business loan –

  • Filled application form
  • ID Proof: Passport, driving license, PAN card, etc.
  • Residence Proof: Passport, electricity bills, sales tax certificate, etc.
  • Bank statements
  • Business registration proof
  • Proprietor(s) PAN Card
  • Partnership deed copy
  • Sales tax documents
  • IT returns
  • Business place address proof
  • Projected balance sheets

4. Where Can You Apply for an MSME Loan?

The RBI has prescribed MSME lending targets for all private and public-sector banks. Domestic scheduled commercial banks (except regional rural banks) and foreign banks with 20+ branches are to mandatorily allocate 7.5% of their Adjusted Net Bank Credit (ANBC) to the microenterprises sector. As per the RBI guidelines, lending institutions must offer MSME loans up to Rs. 10 lakhs without requiring any collateral. However, some lenders offer SME loans for even higher amounts.

Do note that this isn’t an exhaustive list and the lender may ask you for additional documents before approving your business loan.

5. How to Apply for an MSME Loan

It’s extremely easy to apply for an MSME loan online. However, applying for a small business loan can even be done by visiting the nearest branch of your lender. You need to fill in all relevant details in your MSME loan application and submit it to your lender along with necessary documents. Then, your lender will verify your application and documents for authenticity. Once that is done, your SME loan will be sanctioned. Shortly after, the loan amount will be disbursed to your bank account. 

Apply for MSME Loan

Eligible for an SME loan? Apply with India’s leading lending institution – Tata Capital! At Tata Capital, we believe that small businesses are the backbone of our economy. To give them access to the right financial support, we offer small business loans to give them the boost they need. 

Visit our website today and use our business loan EMI calculator to calculate your monthly interest payments!

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