Loans under MSMEs - Classification & Eligibility

Micro Small and Medium Enterprises (MSMEs) are establishments that are categorized on the basis of investment made or equipment used. MSME loans are unsecured loans that are offered by banks and NBFCs to small businesses and startups to meet their working capital requirements or boost their cash flow. In this article, we will talk about various MSME loan schemes and other crucial aspects with regard to it.

Read also: What is Online MSME Registration?

What are the eligibility requirements for MSME loans?

In this section, we will talk about some crucial aspects that must be fulfilled by the applicant before filing an application for MSME loans.

The business must be involved in either of the two categories -manufacturing or service sector.
The investment limit must be maintained as per the requirements prescribed by the Government.

What documents are required for MSME loans?

Following are certain documents that must be submitted to qualify for loans for MSMEs:

Identity proof such as PAN card, Voter’s ID, passport copy etc.
Residence proof
Address proof of the business
The balance sheet for the last three years
Income tax returns
Sales tax returns
Projected balance sheets
Project report
Copy of the title deeds/lease deeds

What is the process of application for MSME loans?

Filing the application form

Some details that must be filled in the application form are as follows:

List of proposed credit facilities
Current business activity
Date of establishment
Current credit facilities
Project cost details such as land development, construction of the building, purchase of plant and machinery, purchase of vehicles, etc.
Means of finance, which must include the owner’s contribution, unsecured loans, subsidies, and term loans
Details of collateral offered and details regarding the third-party guarantee, in case there are any to be mentioned
The status of statutory obligations such as registration under Shops and Establishment Act, registration under SSI. Drug license, Sales Tax Return filed, an updated file of the Income Tax Return, and any other dues that is outstanding

Which banks can offer loans to MSMEs?

All domestic scheduled commercial banks (except small finance banks and regional rural banks) and foreign banks that have more than 20 branches allocate 7.5% of their Adjusted Net Bank Credit (ANBC) or credit equivalent amount of off-balance sheet, to the MSME sector.

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