What Is An MSME Loan?

MSME loans are unsecured loans available to start-ups, small business owners & medium-sized businesses. Visit to know more about MSME loan at IIFL Finance.

7 Sep,2022 10:58 IST 42 views
What Is An MSME Loan?

During the past few years, micro, small, and medium-sized enterprises (MSMEs) have contributed enormously to India's rapid economic growth. Their role in creating jobs in the country has been crucial.

While they play a vital role in India's sustainable development, they also face enormous risks and challenges to survive and grow. Lack of sufficient financing is one of their significant challenges. Due to this, MSME loans have gained popularity in recent times. This article provides an overview of MSME loans.

What Is MSME Loan?

MSME loans are unsecured loans available to start-ups, small business owners, women entrepreneurs, and medium-sized businesses. A Kirana store, department store, salon, restaurant, clothing store, stationery store, small factory, or hardware store may be examples of these types of businesses.

The sole objective of MSME business loans is to keep these businesses growing and expanding despite their lack of financing. It is common for MSME loans to be multipurpose

MSME business loans are given for a short tenure and have flexible repayment options. Specifically designed loans for MSMEs, their eligibility criteria differ from traditional business loans.

Classification Of MSMEs

MSMEs are divided by the Government of India into two types: Manufacturing enterprises and Service enterprises.



Small enterprise

Medium enterprise

Manufacturing Enterprises

Less than Rs. 25 lakhs

Rs. 25 lakhs to Rs. 5 crores

Rs. 5 crores to Rs. 10 crores

Service Enterprises

Less than Rs. 10 lakhs

Rs. 10 lakhs to Rs. 2 crores

Rs. 2 crores Rs. 5 crores

Usage Of MSME Loans

Small businesses can use MSME business loans for many purposes, including

• To meet the requirements for working capital
• Boost the company's performance
• Expansion of new and innovative businesses
• Managing the cash flow of a business
• Investing in new equipment and machinery
• Purchasing tools, vehicles, and other fixed assets for the business
• Developing raw materials or stock inventories.

Significant Benefits Of MSME Loans

Taking out an MSME loan has many advantages. These include:

1. Accessibility

Funding a startup, sustaining an existing business, or expanding your business can be challenging as a business owner. Thankfully, the process of obtaining MSME loans is simple and hassle-free. Loan amounts are disbursed quickly with minimal documentation, especially if you need them urgently.

2. Complete Control

Finance is a crucial part of a small business's operations, but obtaining it is not always easy. While angel investors and venture capitalists are other sources of loans, they tend to seek control of part of the company in return. MSME loans are the best option for small business owners unwilling to lose control of their businesses.

3. Reduced Interest Rates

Business owners who wish to obtain a loan must consider the interest rate when calculating a loan's overall cost and monthly installment. Monthly installments are calculated based on principal and interest. For affordable EMIs, take a loan at a lower interest rate. Small businesses usually benefit from these loans as they have competitive interest rates.

4. No Collateral Needed

MSME loans require no collateral from business owners. Since small businesses may not have many assets, they cannot keep their equipment as collateral. Putting their valuable resources at risk by taking secured loans could negatively impact their productivity.

5. Short-Term Commitment

Most small businesses use MSME loans for short-term needs. Due to the lack of long-term commitment, this arrangement offers some flexibility for the borrower. Additionally, short-term commitments help management handle cash flow and allocate resources more effectively.

6. Flexible Tenure To Ease The Repayment

A comfortable repayment tenure allows borrowers to manage their debt obligations more effectively without defaulting. Business owners can plan their finances better with MSME loans since they offer flexible repayment terms.

Eligibility Criteria For MSME Loans

To qualify for an MSME loan, you must meet the following criteria:

• Have a credit score higher than 750
• The business must be at least one-year-old
• Banks vary in their business turnover requirements for existing businesses, but the minimum is Rs.12 lakh
• Financial stability and good repayment history
• No previous loan defaults

Documents Required For MSME Loan

The following documents are required for MSME loans:
• Government-approved KYC documents such as Aadhaar cards, PAN cards, voter IDs, driving licenses, etc.
• Passport, electricity bill, or rental agreement as proof of address
• Business Financial Statements such as GST Returns, bank account statements, and profit and loss statements from the last six months.
• Business registration documents as proof of ownership

Take Advantage Of IIFL Finance Small Business Loans

Small and medium enterprises can lean on IIFL Finance small business loans to meet their capital requirements. Specifically designed to assist small businesses, MSME business loans provide quick funding for essential infrastructure, operations, machinery, advertising, marketing, and more. These business loans have affordable interest rates so you don't have to cut down on essential expenses.

Frequently Asked Questions:

Q1. What is the interest rate on MSME loans?

Ans. The interest rate on MSME loans usually ranges from 8% to 15%.

Q2. Are MSME loans flexible in terms of repayment terms?

Ans. Yes. The repayment period for MSME loans is flexible, ranging from 12 to 60 months.

Q3. Are MSME loans different from business loans?

Ans. Although both loans are available to businesses and enterprises, the amounts and interest rates might differ slightly. The MSME loan is specifically tailored to meet the needs of MSME businesses.

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