New Definition Of MSME

Under the new definition, the distinction between manufacturing and services enterprises has been eliminated. Under the new definition of MSMEs, the investment criteria for such enterprises have been revised upwards, while an additional criterion of turnover has been introduced.

MSME – Merged Criteria: Investment and Annual Turnover

Sector/Enterprise Type

• Manufacturing & Services Sector, Both

Micro Enterprise

• Investment less than Rs. 1 crore

• Turnover less than Rs. 5 crore

Small Enterprise

• Investment less than Rs. 10 crore

• Turnover up to Rs. 50 crore

Medium Enterprise

• Investment less than Rs. 20 crore

• Turnover up to Rs. 100 crore

Key Takeaways of New MSME Definition introduced in 'Atmanirbhar Bharat Abhiyan‘ Scheme 2020 by Indian Government.

• Collateral Free Loans to MSMEs

• MSME Loans worth of Rs. 3 lakh crore

• Moratorium period offered is 12 months

• Manufacturing and Service MSMEs shall be considered as same entities

• Repayment Tenure of 48 months

• 100% Credit Guarantee

• To benefit approx. 45 lakh units

About MSME Loan

Every small business enterprise requires financial help at some point. The majority of the Micro, Small, and Medium Enterprises (MSME) generally need financial assistance when they are growing horizontally or vertically. This requirement can be for raw material purchase, infrastructure development, or fulfilling operating expenses. It is at the discretion of the business from where they decide to borrow money, as per their needs and priorities.

However, businesses also have the option of obtaining funds from different borrowing instruments. MSME loans are unsecured loans offered by various financial institutions to meet business-related expenditures on credit. It is to be noted that, such loans come with explicit eligibility criteria to reduce the risk ratio for the lenders. RBI and the Indian government define such loans as, the loans offered to businesses for support in terms of infrastructure, finance, and other sectors.

MSME loans are also referred to as SME (small and medium enterprise) loans. Usually, these loans are granted to small business owners, startup owners, and women entrepreneurs with subjective loan tenure. Here are some of the salient features, benefits, eligibility, and smart usage of MSME loan funds.

Features of MSME/SME Loans

MSME business loans can offer funds for many crucial functions that are responsible for the development of a company. For instance, they can save their time by filling an online application form and confirming their requirements. They need not follow a long approval procedure while applying for MSME loans on digital platforms.

Here are some attractive features offered by digital lending platforms to its applicants:

Online Application:

Digital lenders follow a fast track procedure and try to eliminate every possible delay factor in the loan application and approval process. Online MSME loans generally get approved within a few working days, provided eligibility criteria are fulfilled.

Amount and Tenure of Loan:

Business owners can avail a loan up to 50 lakhs. Also, the majority of digital lending platforms adopt a flexible approach when it comes to repayment of loans. They generally follow tenure of 12 to36 months, to allow the businesses to repay it as per their preferred schedule.

Hidden Charges:

Availing MSME loans from digital lenders don’t come with any hidden or extra charges.

Flexible Repayment Option:

Digital lenders offer ample of time and repayment options to its MSME/SME applicants. The loan tenure range from 1-36 months. Applicants also have an option to repay in EMIs or bi-weekly or monthly installments.

Benefits of MSME/SME Loans

What are the benefits of applying for MSME/SME loans from a digital lender? Keep reading to know more about it.

Competitive Interest Rates:

The best part about applying MSME/SME loans is the competitive interest rates. Digital lenders follow an online process that is both time-saving and resource-saving. In this turn, it helps them in saving costs and offering competitive interest rates.

No Collateral:

MSME/SME loans are unsecured loans. In other words, applicants need not pledge any asset to secure the loan.

Quick Funding:

Applicants can expect loan sanction within a couple of days. Fund disbursal will also be done at a rapid rate. What more can they ask for? They need not wait for weeks or months to get their loan applications sanctioned.

Complete Control:

MSME/SME are unsecured loans for the applicant who meet certain eligibility criteria. The applicants do not lose their ownership and control over their assets. They can use these assets to grow their business further.

Better Capital Management

Loan applicants can expect peace of mind by applying for MSME/SME loans from digital lenders. They can invest the funds in plant and machinery or streamline their cash flows and working capital.

Enhance Goodwill

Every business needs the right boost to grow and succeed. MSME/SME loans are the perfect medium that can help such enterprises grow at the appropriate time. This will enhance their credibility and goodwill in the market. This will open more avenues for business finance and investments.

Eligibility Criteria for MSME/SME Loans

The digital lending platforms don’t believe in burdening the loan applicants with complex eligibility criteria. Generally, businesses are eligible to get a loan if:

The manufacturing unit is operational for the last one years

IT returns are filed on time for the last two years

GST returns are filed for the last 12 months on time

Procedure to Apply for an MSME/SME Loan

Here are the three easy steps to get an MSME/SME loan

Application:

Applicants who wish to secure a loan can fill in an online application form giving details about their fund requirements

Documents:

The next step is to upload relevant documents like bank statements, PAN Card copy, Adhaar Card copy, Business Registration Certificate, GST Filing, Drug License, Trade License, TIN, and VAT Registration.

Sanction:

Applicants can expect a loan application approval the moment all their documents and other submissions are verified.

Why should Enterprises go for MSME loans?

Do you know that the MSME sector is one of the largest sources of industrial output and employment in India? Around 40% of the total country’s exports and 45% of the total industrial production comes from this section. Therefore, the MSME sector has always showcased a high demand for business finance.

Inability to secure finance at the right time is one of the biggest issues faced by various small and medium scale enterprises in the country. However, (NBFC) non-banking financial companies are a promising alternative for the manufacturers who wish to secure business finance immediately. The online submissions have made the process very easy and short.

They can utilize these funds wisely in the following activities:

Plant and Machinery

Manufacturers can utilize their business loan funds to purchase new machinery or upgrade the existing ones. This will have a direct impact on their profit ratios and growth chart.

Procurement of Raw Material

If an enterprise is confident of its plant and machinery, and installed technology, the best way to utilize MSME loan funds is the procurement of raw material. The high-quality raw material will ensure equal grade final products and ultimately high profits.

Working Capital Management

WCM is a business strategy formulated to ensure that the company grows by utilizing its assets and liabilities in the best possible manner. Manufacturers can effectively utilise their loan funds to expand their business operations without exhausting their existing capital funds. This can be a fruitful option for the manufacturers who have the latest manufacturing equipment and aim to vertically or horizontally expand their operations.

Marketing

Manufacturers can also use loan funds to market their products and services on a larger-scale. This will open many new growth avenues for their enterprises.

Manpower

MSMEs can utilize the loan amount to hire new employees and train the existing workforce. Training the employees regarding the latest industrial advancement can prove to be fruitful in gaining a competitive edge in the industry.

Do’s and Don’ts while Applying for Online MSME loans

Here are some simple tips that will increase the chances of securing an MSME/SME loan for the applicant, by reducing the risk of rejection.

Do’s

• The applicant must cross-check all the compulsory documents required for this process

• Applicants should check their credit score as some digital lenders consider it at the time of sanctioning the loan amount.

• Calculating the actual MSME loan requirements in advance will be a wise move for the applicants.

• Applicants should also have a viable business plan for the right allocation of loan funds.

Don’ts

• Applicants should be aware of the fraudulent lenders available online. They charge an upfront fee for approving the MSME loan. However, any reputed digital lending platform will never ask for an upfront fee, instead, it will charge a minimal percentage after loan disbursal.

• Applying for MSME/SME loans from multiple lenders can harm an applicant’s credit score.

• Applicants must ensure that all their pending debts are cleared before applying for MSME loans.

Many small business enterprises face issues due to low access to funds that hampers the growth of their business. Indifi is a leading digital lending platform that offers MSME/SME loans to the manufacturers sans any collateral and at the most affordable interest rates. They offer business loans with flexible repayment schedules and without any hidden charges. All this makes the repayment process quite convenient for the applicants.

Frequently Asked Questions

What is the difference between SME and MSME Loans?

Both terms are the same. SME stands for small and medium enterprises. Whereas, MSME stands for micro, small and medium enterprises

Which documents are required to get an MSME loan?

Documents like Bank Statements for the last 12 months, PAN Card copy, Adhaar Card copy, Business Registration Certificate, GST Filing, Drug License, Trade License, TIN, and VAT Registration are required for this purpose.

What is the maximum term limit for MSME loans?

The maximum term limit for the MSME loans is 36 months.

How should the loan funds be optimally utilized?

An enterprise can divide the funds wisely in raw material procurement, working capital optimisation, and inventory management.

What is the interest rate for a MSME business loan?

The interest rate starts from Rs. 50 per day or 1.5% per month, evaluated on a reducing balance.

What is the processing fee for MSME business loan?

One time processing fee for a business loan is around 2% of the sanctioned loan amount.

What determines my sanctioned loan amount?

Your credit rating, business profits, and revenues will determine your final loan amount.