MSME Loan for new business

The 12th five-year plan of India has laid special focus on the advancement of the business sector, especially the micro, small and medium enterprises sector, commonly known as ‘MSME’. The Working Group on MSME reported that the MSME sector is the gateway of global growth in India, it is the foundation of the overall manufacturing sector and nurturing the competitive sector would boost the Indian Economy by providing a contribution of 45% overall industrial output. The MSME Sector is expected to increase the sectoral share of manufacturing in GDP to 25% over the next decade while also creating 100 million job opportunities in the manufacturing sector. Due to this reason, the government has formulated special loan schemes and policies to provide finance and credit to the MSME sector.

MSME LOANS FOR NEW BUSINESSES

To boost the funds, investment and credit in the MSME sector, the government of India, banking institutions, and non-banking finance companies have formulated MSME loan schemes that will offer business loans to enterprises and new businesses. New Businesses can use MSME loans for their maximum benefit. MSME loans provide funds for capital growth which can also be used for any kind of business requirement. These loans also provide benefits on certain taxes.

MSME LOAN SCHEMES

Entrepreneurs can avail MSME loan schemes provided by the government or any banking or non-banking institution. The major banks providing business loans to MSME sector include HDFC Bank, SBI, ICICI, Allahabad Bank, Punjab National Bank, Union Bank of India and others. Non-banking financial institutions are Bajaj finserv and LendingKart Finance.

1.    SBI MSME loan- State Bank of India offers MSME loan to businesses engaged in manufacturing or services, to self-employed and professional individuals and wholesale or retail trade dealers. The amount of loan depends upon the average monthly balance in the current account of the entrepreneur in the previous 12 months. The minimum loan amount is Rs. 10 lakhs while the maximum loan amount exceeds 25 lakhs. Minimum collateral security of 40% is required to avail of this scheme. The repayment period is of 60 months while unified charges are Rs.7500.

2.    HDFC Business Growth loan- HDFC Bank offers maximum 40 lakh as loan amount to small businesses, self-employed individuals, proprietors, private companies and partnership firms involved in manufacturing, trading or services who have total business experience of 5 years and are engaged in the current business for a minimum of 3 years. In order to avail this loan facility, the business shall have a minimum turnover of 40 lakhs and the business should have been making a profit for the past 2 years. ITR should be Rs 1.5 lakhs per annum.

3.    ICICI Bank- ICICI bank offers customized loan solutions for MSMEs. It offers loans for new entities, collateral-free loans, loans without financials, finance for importers and exporters, and instal-secured overdraft facility. The bank offers loans up to 1 crore without any finances. 

4.    Bajaj Finserv- Non-banking Finance Institution Bajaj Finserv offers MSME/SME loan up to Rs. 30 lakh. It offers collateral-free funds which are approved within 24 hours. The MSME loan facility from Baja Finserv can be availed to invest in the firm’s infrastructure, meet working capital requirements, install new plant and machinery and to pay for several overheads.     
MSME LOAN INTEREST RATE

Banks and non-banking financial institutions have various interest rates depending upon the type of loan and loan amount. Mostly, 8.65% interest rates are levied on MSME loans which may increase to 16.25% for different banks. Interest rates for various banks offering MSME loans have been given below.

MSME LOAN ELIGIBILITY

Eligibility criteria for MSME loans depend vary as per different banks, schemes, and enterprises. However, there are certain basic requirements that are to be followed for every bank offering MSME loans. Return on investment and profitability of the project proposed to be set up are the major eligibility criteria for borrowing loans from any financial institution.
According to the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006, micro, small and medium enterprises have been categorized into two divisions- manufacturing and service enterprises. The manufacturing sector can invest the following amounts:-

Service enterprises can make the following investments-

Other eligibility requirements include:

• There should be technical/economic viability.

• There shall be a contribution on behalf of the promoter.

• The entrepreneur borrowing the loan shall have the capacity to repay it.

• There shall be collateral securities or guarantees at the time of the advancement of loan.

Following documents are required for obtaining MSME loans:

• An application form

• An identity proof, preferably PAN card, Aadhar card, Voter ID or passport.

• Proof of Residence.

• Proof of Business Address.

• Proof of Age.

Financial documents include:

• Income tax and Sales Tax returns.

• Profit and loss of balance sheets for the last 2 years.

• Bank statements

• Project report

• Copies of partnership deeds, lease deeds, and sale deeds.

• Banking institutions may ask for additional documents.

Author:

eStartIndia Team