Want to Know About MSME Loans? Here’s Your Guide

MSME stands for Small, Medium and Micro Enterprises. MSMEs are divided into three categories: manufacturing companies engaged in the production of goods; the service enterprises engaged in providing services, and the third one engaged in trading. Much as individuals have various loan options, such as home loans, car loans, and personal loans, financial institutions are now offering business owners different kinds of loans as per their ability and requirements. 

With MSMEs (micro, small and medium-sized enterprises) constantly growing in India, lenders are offering exclusive loan products to MSMEs. Generally, smaller companies take MSME loans to finance their operations. They can take working capital  loans or machinery loans to purchase equipment, stock purchase, raw materials , or for day-to-day business activities.

The MSME industry constitutes a major portion of the Indian economy’s foundation. There is no question that the nation’s economy expands and flourishes as these industries grow.

Why Do You Need MSME Loan? Is It Helpful?

The resources and capital that existing big companies can access may not be available to a micro, small or medium enterprise. However, MSMEs have various opportunities to grow, but they usually suffer because of the lack of formalization and lack of property collateral. 

For Instance, during the Coronavirus pandemic, a small kirana store may have seen increased demand. However, several consumers may have bought goods on credit. But, the shop will need to stock up on products. In this case, the store might benefit from an SME business loan, enabling the owner to buy inventory without waiting for cashflow.

MSME loans are a significant source of funding for business owners who want their companies to grow or start on a small scale. 

Some MSME loan features are:

  • MSME loan is intended to promote the flow of credit in the MSME market.
  • These loans aim to introduce technical upgrades to the small business market.
  • MSME loans provide the small-scale industry with overall growth through capacity development and training programs.
  • Sole ownership firms, partnership firms, private limited companies, public limited companies, manufacturing, trading or service-based micro and small businesses all are eligible for MSME loan except agriculture & self-help organisations, educational establishments, teaching institutions.
  • Depending on the borrower’s repayment ability and the lender’s terms and conditions, MSME loan may be secured or unsecured.
  • Interest rates on MSME loans differ from lender to lender, beginning at 13.50%.
  • The loan amount will also vary depending on the lender and the borrower, similar to interest rates. 

Eligibility Criteria and Documents Required to Avail the MSME Loan

Earlier, the MSMEs were defined based on the investments they used to put in, but now the revised definition also includes the company’s turnover. MSMEs will now be called micro-units if they have investments up to Rs 1 crore and have a turnover of less than Rs 5 crore. The investment limit has been increased from Rs 5 crore to Rs 10 crore for the small units with a turnover of less than 50 crore. Enterprises with investments up to Rs 20 crore with a turnover of less than Rs 100 crore will now be called Medium units. This change in the definition is in favour of the MSMEs.


To take advantage of MSME loans, the borrower needs to meet certain document requirements. They include:

  • Personal KYC Aadhaar, PAN, Voter ID, Driving License, or Passport.
  • Address proof: Service bills such as bills for power, water or broadband, ration cards, and rental agreements.
  • Finance proof: ITR papers, profit and loss accounts, banking statements or copies of passbooks over the last two years.
  • Company-related documents: Certificates of firm registration, technical certificates in the case of self-employed practitioners, proof of business turnover for sole proprietors, relationship agreements for business partners and, where applicable, the Memorandum of Partnerships.

However, keep in mind that the eligibility criteria and documentation requirements can differ.

How Do You Get A Loan From MSME?

Both banks and NBFCs provide MSME loans. You can get an MSME loan by either applying online or by visiting their respective websites. However, it is important to fulfil the eligibility and document criteria. So, in case you are planning to take an MSME loan, consult at least a few lenders. Choose the one that is most reliable before making a decision. There are trustworthy non-banking financial institutions like Kinara Capital that offer MSME loans at highly competitive interest rates, without taking any land or property collateral. 

They are the leading provider of fast small business loans in the range of Rs. 1-30 lakhs to the MSME sector in India. They have loan products for all your business needs. On average, Kinara Capital customers experience an improvement in income by 20%, and experience  business growth and the local economy.

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