Financing is an essential part of a business. A capital investment, no matter how big or small, is needed for financing a business. Only through a solid capital structure can your business guarantee you a constant inflow of cash. Large companies that are well-established use many modes of raising finances, such as IPO’s, institutional loans, etc.
What about the marginal up-and-coming businesses? How do they raise finances for themselves since small businesses have low credibility with banks? MSME loans. MSME stands for Micro, Small and Medium Enterprises. The MSME loan is available for small-scale businesses as institutional banks do not finance them due to collateral and other credibility factors.
Most small businesses do not possess the factors and requirements that make them eligible for an institutional loan. Before we get into what the MSME loan is and how you can avail of it, here’s a short overview of the small-scale enterprises’ field and how it differs from mainstream high capital companies.
Micro Small & Medium Enterprises
Since we’re focusing on the MSME loan and not MSME itself, we’ll keep the briefing about small-scale industries short and concise. The primary difference between small and large-scale industries is the magnitude of investment made in both respective industries.
The regulations set by the government limit the capital of small-scale industries. Small or micro-scale sectors are most commonly set up by private individuals with the help of family ties or more informal connections. This industry uses lesser capital, machinery, and workforce compared to large-scale industries, hence the more secondary capital.
The capital regulation for micro-businesses should not exceed more than one crore, and its turnover should not exceed more than five crores. For small-scale businesses, capital should not exceed more than ten crores, and turnover should not be more than fifty crores. Finally, it should not exceed more than 50 crores for medium enterprises, and the turnover shouldn’t exceed more than 250 crores.
Any business that exceeds these regulations no longer qualifies as an MSME and is termed a large-scale industry. Some key examples of companies in the small-scale industry are bakeries, Kirana stores (provision stores), stationery shops, etc.
The MSME loan is widely known around the country as the under 60 minutes loan, and it is true to its name. The MSME loan is a financial aid scheme introduced by the government in September of 2018. This loan actively helps in the growth of the country’s economy as it helps finance numerous small businesses.
You can avail of the MSME loan to get a capital of a maximum of 1 crore for your business. This entire procedure takes around a week or more but before a fortnight at least. With no need for collaterals and various pre-requisites for credibility, the loan gets sanctioned for you within 60 minutes.
The interest rates are directly proportional to the magnitude and nature of the work taken up by the entrepreneur. The MSME loan has a starting base interest rate of 8.5% and increases accordingly.
Availing the Loan for First-Timers
If you’ve wanted to start a small-scale business by yourself with little to no idea of how to raise finances for it, we’ll walk you through the basics of MSME schemes and how to apply for each of them. Since banking has now been highly digitized, you can apply for the MSME loan online.
The application process for the MSME loan starts with checking your eligibility. You need to be a resident of India aged between 25 – 65, and you also need to have a running business of over three years with the filing of income taxes for at least a minimum of one year.
Eligibility details include basic identification details such as first name, last name, email id (optional) and phone number. Business-related information such as the nature of and type of business with expected returns over 12 months are specified. Based on this, you will be notified whether you are eligible for an MSME scheme or not.
First-timers should visit the Udyami Mitra website, which is an online portal for you to apply on. You can fill the online form on the online portal, provide the minimal but compulsory documents needed to avail of the loan. If you find it challenging to apply for the loan, various guidelines are available on the website, making it easier for you to work around.
After you apply for the loan, your application goes through a screening process by professionals of the financing institution and accordingly either clear you or reject you. If you’ve been denied, you will have to review your application once more, or you might not have cleared the eligibility requirements. If you’ve been cleared for the loan, the process will take up to 8 – 12 days for the money to be deposited in your account.
Schemes and Benefits of MSME Loan
The MSME loan has various schemes that you can avail of and benefit from. We’re stating the two primary ones for you and hence let’s take a look.
Credit Guarantee Funds Trust for Micro and Small Enterprises was established in 2000 by the government as a trust fund that helps bring cash for micro and small businesses in the country. The CGTMSE is a crucial scheme to help raise finance for those with minimal to no experience in setting up businesses. This is a massive boost for those who want to set foot into the business world for the first time.
Credit Linked Capital Subsidy Scheme or CLCSS is a government MSME subsidy scheme for those in the MSME sector. This is a highly beneficial scheme for those that have difficulties in availing quality machinery for their businesses.
This scheme was mainly aimed at improving the technological standards of the MSMEs by providing subsidies of over 15% on plant and machinery for investments reaching up to one crore. To avail of this scheme, you need to pass the eligibility criteria stated by the PLI ( Production Linked Incentive ).
This article was a basic overview of the MSME loan, its two primary schemes, and how to avail each one. Although we’re sure it was helpful, for a more detailed and structured process of walking you through the application and availing of the loans, you can visit www.udyamihelpline.com/membership to know more.