MSME loans stand for micro, small, and medium enterprise loans. These types of loans are available for people who own small or medium-sized businesses or are entrepreneurs. To run a business an individual or organization requires working capital. 

Working capital allows the business to purchase new inventory, spread their operation, buy new equipment, and pay salaries to the staff. MSME loans act as working capital for your business or firm in times of need.  

MSME loan interest rates would differ from institution to institution or broker to broker. There are many vendors in the country who offer MSME loans and hence the rates can vary. You need to meet certain expectations to qualify for an MSME loan. In this article, we will cover all the aspects you need to consider while going for an MSME loan.  

Eligibility criteria for MSME loans:  

• The person applying for the loan should be an Indian citizen who is aged between the years of 23 and 65.  
• The person should own a permanent residence in the country and should be living in the same residence for a minimum period of a year.  
• The individual should be conducting his or her business for a minimum period of 3 years.  
• The turnover of the company of the individual should at least be 20 lakhs and no less.  
• Any preexisting credit obligations should be disclosed by the individual upon filling out the loan form.  
• The individual should possess a valid business registration certificate, expired ones won’t do.  
• The person applying for the loan should be involved in manufacturing or service-based industries. 

 Types of loans available for MSMEs:  

• Term loan: there are two types of term loans, the first is short-term loans and the other is long-term loans. According to the requirement of the company or the enterprise, the institutions are allowed to give out loans in the range of 1 lakh to 1 crore. Short-term loans must be repaid within a year whereas long-term loans have a repayment tenure of 1-5 years.  

• Working capital loans: when an enterprise must meet its daily business requirement, they opt for working capital loans. Generally, no collateral must be offered up by the business owners in exchange for the loan. On the other hand, the interest rates of these working capital loans are high.  

• Bill discounting: in these types of loans, the financier provides a certain amount of money in advance to the individual who needs the loan. In return, the individual must pay monthly interest rates back to the financier.  

• Equipment finance: in these loans business owners are assisted in buying new equipment or machinery for their businesses. These loans are only applicable to companies that are working in the sector of manufacturing.  

Concluding Thoughts

MSME loan interest rates are generally manageable except in the case of working capital loans where the rates are comparatively high. While the rates would and could differ from bank to bank you could have a rough estimate about them after conducting research on the internet. 

MSME loans are very helpful to small and medium-sized businesses as they often find themselves in need of capital to grow their business or even sustain it at times. Before applying for an MSME loan be sure to read the criteria list beforehand and make sure that you and your company are ticking all the required boxes. 

MSME loans can serve multiple functions for business owners such as providing working capital or helping in the purchase of new equipment or machinery.