Eligibility and Steps to Apply for an MSME Loan Online

08/07/2021

Choose language:

What are MSMEs?

MSME stands for Micro, Small and Medium enterprises. The term is also at times shortened to SME for 'Small and Medium Enterprises'. The recent change in the definition of MSME has now qualified any entity that has an investment up to Rs. 10,000,000 and turnover not more than Rs. 50,000,000 as a micro enterprise. The equivalent figures for small enterprises are Rs. 10,00,00,000 and Rs. 50,00,00,000 and for medium enterprises the corresponding figures are Rs. 50,00,00,000 and Rs. 2,50,00,00,000. Thus, 99% of businesses now fit under the category of MSME in India.

Eligibility and Steps to Apply for an MSME Loan Online

What are MSME loans?

The Government of India (GoI) under the Credit Guarantee Scheme (CGS) provides access to collateral-free credit to existing and new micro and small business enterprises via banks and financial institutions. Launched on 30th August, 2000 the scheme has led to establishment of a Trust named CGTMSE (Credit Guarantee Fund Trust for Micro and Small Enterprises) by the Ministry of Micro, Small and Medium Enterprises, GoI and SIDBI (Small Industries Development Bank of India). The GoI and SIDBI contribute to the corpus of CGTMSE in the ratio 4:1 respectively. The funds are provided to banks and financial institutions, which in turn lend collateral free credit to MSMEs.
Though there are variations in figures of investment and turnover for small, medium and micro enterprises, MSME and Small Business Loans offered to the businesses that fall under their categories by CGTMSE are the same. These short-term loans are given to startup owners, small business owners and women entrepreneurs:

To meet their working capital requirements
To expand their business
For management of business cash flow
For installation of new equipment or machinery
For the purchase of raw materials, tools and other necessary items
To stock up inventory
To pay-off daily expenses to meet business needs

Who Can Apply for MSME Loan?

MSME loans are given to existing or new MSMEs for a duration and interest rate that varies from lender to lender and is based on factors such as total loan amount, tenure of repayment, nature and years of service, and profile of the applicants, their financial history, creditworthiness and capability of repayments. Since MSME loans are unsecured loans, in order to reduce the risks for lenders, there are some minimum eligibility requirements that too vary from lender to lender and usually require:

The applicant’s age should be between 18 to 66 years.
The company should be a registered legal entity.
The business enterprise should have been in service for at least two years and should be generating profit.
The applicant should be an Indian citizen with no criminal record.
The applicant should have a good credit score and payment.
The applicant should have CA certified financial documents.
The applicant should have Income Tax Return statements and GST returns for the last two financial years.

How to Apply for MSME Loan?

The MSME loan process is very simple. Applicants can either apply for MSME loans online at the official website of the financial institution, or visit them personally. However, applying online is easier and takes less time. You can do the same by:

Submitting an application after filling up your personal, financial and business information in the loan form provided by the lender.
Providing all the required documents for verification.
Getting your loan approved and disbursed by the lender.

What Documents are required to get an MSME Loan?

The following documents are required to apply for MSME loan:

Duly filled MSME loan application form
Passport-sized photographs of the applicant and partners or co-applicants , if any
KYC documents of applicant and partners or co-applicants, if any
Address proof of applicant(s): An address proof that has the name of the applicant (business owner) along with the latest/current address. All the details of the address proof must match with the details of the PAN card. Following documents are considered as an address proof for business name registration:

Passport
Aadhar card
Ration card
Voter identity card or Election card
Electricity/telephone bill
Driving license

Residential proof of applicant(s): An original and photocopy of residential proof of the applicant(s). The following documents can be submitted as the residential proof :

Mobile bills
Telephone bills
Electricity bills
Bank statement

Registered office proof:

The registered document of the office in the name of the company.
The rent agreement or notarized copy of lease along with a rent receipt in the name of the company for the previous month.
NOC from landlord
Electricity bill/ telephone bill or any such proof of evidence of any utility service that shows the address of the registered office. These bills should not be older than 2 months.

Memorandum of Association (MoA)
Income proof of the applicant or co-applicants and bank statement of the previous financial year
Article of Association (AoA)
Copy of Licenses, Certificates and Registrations, if applicable

Who Can Provide MSME Loans?

An MSME loan can be availed from eligible Banks/Financial Institutions that are scheduled commercial banks (Public Sector Banks/Private Sector Banks/Foreign Banks) and many Regional Rural Banks. There were 133 eligible Lending Institutions registered as MLIs of the Trust, as on May 31, 2016. Here is a list of few leading banks that can provide you MSME loan:

Allahabad Bank
Oriental Bank of Commerce
Andhra Bank
ICICI Bank
Central Bank of India
Indian Bank
Punjab National Bank
State Bank of India
Syndicate Bank
UCO Bank
Union Bank of India
United Bank of India
Bajaj Finance
Lendingkart Finance
Axis Bank
Kotak Mahindra Bank
Corporation Bank
IDFC First
HDB Finance
Fullerton Finance
Flexi loans
RBL Bank

Few Tips to Consider While Applying for Small Business Loan

Avoid applying with multiple lenders as it shows financial desperation on your part and can reduce your credit score.
Try to repay all of your existing debts on time even if you are applying for the MSME loan to clear the same debt. Not doing the same can also reduce your credit score and negatively affect your financial goodwill.
Avoid fraudulent lenders who ask for huge upfront fees.
Apply for loans only after proper assessment of your monetary need to avoid any wastage of time and money.
Be ready with a detailed business plan that specifies how you intend to spend the loan amount. You can use the same to convince the lender in a better way.
Ensure all of your documents are in place and authentic.
Keep a track of your credit score as most lenders rely on that before sanctioning the loan.

Conclusion

If you have the right business idea, just believe in the same. Your confidence is the first building block which when combined with the needed monetary aid can do wonders!