MSME Business Loans are a type of startup business loan offered to business owners. Personal borrowers, micro, small, and medium-sized enterprises (MSMEs), and startups can all qualify for business loans under MSME loan schemes. There are several banks and credit unions that offer startup loans. MSME loans are unsecured loans because they do not require collateral. These loans can be availed from different banks to help businesses cover a wide range of operational costs.
MSME loan schemes are used by business owners and firms for several reasons. Here are some of the reasons:
- satisfying working capital needs
- managing or rising cash flow
- business growth
Most banks and NBFCs (non-bank financial companies) give loans to SMEs and MSBs without asking for any collateral. This is why an MSME loan is one of the best means of aiding a firm to grow. This blog will explain in detail how to apply for MSME business loans in India.
Registration as a New User for MSME Loan
Here are the steps one must follow to become a new user of MSME and apply for an MSME loan:
- Visit udyamregistration.gov.in and register yourself for the Ministry of Micro, Small, and Medium Enterprises in India
- Click “New Entrepreneurs who are not Registered yet as MSME or those with EM-II” if you are signing up for the first time
- Select ‘Validate and Generate OTP’ after entering your name and Aadhaar number. The service will send a One Time Password (OTP) to the number you have added. Add the OTP to verify your identity. After that, you will need to provide your PAN number and the data of the firm you represent to confirm your account
- The next step is to fill out the profile with the details about the firm or facility you work at
- Now click on the “Submit and Get Final OTP” button once you have filled out the form. You will receive a one-time password on your phone. Enter the OTP, to get confirmation that your MSME registration is successful.
Eligibility Criteria for MSME Business Loans
To get an MSME Business Loan the borrower must satisfy the bank’s criteria. Each banking institution has different criteria. These criteria may change based on the type of plan you are applying. Here are the general criteria to be eligible for an MSME business loan:
|Type of business||Manufacturing SectorService Sector|
|Size of business (in terms of investment) – Manufacturing Sector||Micro – < Rs.25 lakhSmall – < Rs.5 croreMedium – < Rs.10 crore|
|Size of business (in terms of investment) – Service Sector||Micro – < Rs.10 lakhSmall – < Rs.2 croreMedium – < Rs.5 crore|
The business loan schemes for startups and MSMEs have their separate eligibility criteria. However, here are some of the general criteria you need to qualify to get a business loan:
- The minimum age limit to apply for a loan is 21 years, whereas 65 is an upper age limit
- The applicant must be a citizen of India
- Applicants must have a solid business plan to get their application approved.
- Multiple MSMEs can be set up as either a sole proprietorship, partnership, corporation or limited liability company (LLP)
- It is important to have a good credit history to avail of MSME business loans and startup business loans
How to Apply for an MSME Business Loan?
The Reserve Bank of India (RBI) has given minimum loan limits to MSMEs for all banks in India.
- There are two ways to apply for a loan for an MSME or a new business. Some banks allow you to fill out the online application form, you can fill out the bank’s online form and submit it.
- Applicants can also fill out their application forms by visiting the nearest bank branch. They can contact the branch to find out what ID proofs and other documents are needed.
Almost all banks in India give loans to small and medium-sized enterprises (MSME) without asking for collateral. Unsecured loans are made available to MSMEs, for businesses that fall within the ambit of micro, small, and medium firms.
Documents Needed for Startup Business Loans
Proof of identity and address proof is required to apply for a loan. Check the list of documents given below:
- A passport, Aadhar card, driver’s license, voter card, PAN card, and utility bills are needed for the KYC
- Individually penned business plan
- The previous year’s tax return and bank statements of the past 12 months are needed.
- Document proving the formation of a company.
- Documentation of a legitimate business location.
- In addition, the lender may want further paperwork.
Points to Remember for Startup Business Loan
To qualify for startup business loans, you must keep the following things in mind:
- Create a clear plan for the firm
- Include a detailed explanation of how you are going to put that loan money to use in your business plan
- Provide a concise summary of the company’s goal and long-term vision. Do not forget to explain your financial projections and a growth chart
Perks of Getting a Loan for a New Business
- No collateral or guarantor is needed for a start-up business loan.
- Getting a startup loan is easy, and the repayment terms can be adjusted to fit your needs.
- For a startup business, minimal documents are required to get a loan.
- The requested funds are sent to the applicant’s bank account without any unnecessary delay.
The Bottom Line
MSME in India is vital to the country’s economy hence, the Indian government has implemented several measures aimed at fostering the growth of India’s micro, small, and medium enterprises. MSME business loans are among the market’s most reasonably priced options for financing a company in its initial stage. Loans to MSMEs often carry an interest rate between 7% and 12%. Thus, these start-up business loans are one of the most cost-effective forms of debt for entrepreneurs to kickstart their ventures. Read more related blogs on the Piramal Finance website to explore our financial products and services, especially those on business loans, personal loans, credit cards, and financial calculators.
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