MSME loans, also known as MUDRA MSME loans, are short-term credits given by banks to micro, small, and medium-sized businesses to help them finance their operations. The Micro Units Development and Refinance Agency (MUDRA) is the lending program that aims to “fund the unfunded” without the use of collateral or guarantees. MSME loan interest rate is reasonable with flexible payback schedules. The money provided as an MSME loan can be utilised for cash flow improvement, business development, and working capital needs.
You may apply for MSME Loan if you are a part of MSMEs. Several banks provide this loan. Along with receiving the credit at a competitive interest rate, you will also receive a number of additional advantages including a flexible repayment schedule and satisfactory conditions and terms.
The MUDRA MSME financing plan divides startups and small companies into three categories:
- Shishu – MUDRA MSME loan provides ₹50,000 to startups and enterprises that are in the initial stage.
- Kishore – This category is established by examining different variables such as company growth, turnover, and scope, and the beneficiary is granted MSME loan ranging from ₹50,000 to ₹5 Lakhs.
- Tarun – This category provides loan of up to ₹10 Lakhs after assessing the needs of the enterprises.
How to Apply for an MSME Loan?
To complete the MSME loan application process, you must take the actions listed below:
- Step 1: Go to the financial institution’s business loans page and apply for an MSME loan there.
- Step 2: Fill in the form and provide certain important information, including your PAN number, Aadhaar number, business address, annual revenue, and ITR details.
- Step 3: Based on the information you have provided, you may now view the maximum amount you are eligible for from the lender as an MSME business loan.
- Step 4: Next, you must now choose a loan offer and payback period.
- Step 5: The lender will receive your information when you have filled in the details about the MSME loan amount and the repayment period.
- Step 6: The authorised loan amount will be paid to your bank account within a few days after the verification procedure gets successfully completed.
Eligibility for MSME Loan
Before you apply for MSME loan, you must be aware of the eligibility for an MSME loan in order to avoid rejection and save your time.
- Applicants must be between the ages of 25 and 55 (may vary across the lender).
- Applicant’s businesses must be older than three years.
- They must have submitted Income Tax Returns for the firm for at least one year.
- Applicants must have a credit score of 750 or above.
- The applicant(s) must not have a history of loan default in their or their company’s name.
Documents Required for MSME Loan
- Identity proof: Aadhaar card, Driving license, Voter ID card, Passport
- Address proof: Utility bills, Aadhaar card, Driving license, Voter ID card, Ration card
- Business proof: Declaration of business existence, profit and loss statements for the preceding three years, Income Tax filings for the last fiscal year, and so forth.
Benefits of MSME Loan
An MSME loan may be used for a range of purposes, such as upgrading the infrastructure of your business, buying and maintaining industrial equipment, and buying raw materials.
Here are a few advantages of an MSME loan.
- Simple Application Procedure
Typically, MSME loans do not necessitate a significant amount of paperwork, and the entire procedure may be finished fairly rapidly. You may swiftly and easily obtain an MSME loan if you are in a need of immediate money.
- No Collateral Required
MSME loans do not need any form of security from the borrower.
Since most MSME loans are utilised for short-term needs, you have more flexibility because you are not required to make long-term commitments.
- Reduced Interest Rate
MSME loan interest rates are reasonable and this is one of the reasons why small company owners prefer MSME loans.
- Is a credit score necessary for an MSME loan?
A credit score of 750 or above is typically regarded as excellent for MSME Loans, however, this does not indicate that you cannot obtain an MSME loan with a lower credit score. Even if your credit score is 650 or above, you can still qualify for a loan from some lenders.
- Does the MSME loan include any subsidies?
In accordance with this MSME loan subsidy program, qualified businesses can get an annual interest rate reduction of 2% on any outstanding incremental term loans or working capital loans throughout the program’s operational duration.
- Does MSME have an income tax exemption?
According to the government’s plan and depending on the nature of the firm, companies with MSME registrations are eligible for a first-year direct tax exemption.
- Is it necessary to file an MSME return?
Every firm is required to submit the MSME Form I two times. The first one is as a semi-annual return by October 31st, applicable for the period from April to September, and another filing should be done by April 30th, which will be effective for the period from October to March each year, referring to the unpaid amounts owed to MSMEs.