MSME Loan: Why it is an Ideal Choice for Small Business Owners

Micro, small, and medium enterprises (MSMEs) are among the largest employment providers in India. The total contribution of MSMEs to the overall employment in the country is 69%. MSMEs account for about 45% of the manufacturing industry and 40% of total exports from the country. Since the contribution is major, the growth of MSMEs drives the growth of the Indian economy.

MSMEs, like any other businesses, also need money and investment to survive and grow. Knowing its importance, the Government of India and banks have launched various schemes providing business loans to MSMEs.

MSMEs need to pass some financial tests to get an unsecured business loan or working capital loan from a bank or NBFC. However, the eligibility criteria to qualify for an MSME loan are less than what is required to qualify for a normal business loan from any lender. For a regular business loan, only those businesses are preferred which are low-risk and profitable. This is the reason why an MSME loan is considered best for a small business owner as it has minimum eligibility criteria to fulfil along with many additional benefits.

Why MSME Loans?

- Minimum eligibility criteria required to qualify for the loan

- Profit on certain taxes

- Government based MSME loans are available

- Provides equal opportunity to almost all types of businesses

- Provides funds for capital growth

- The funds received from the MSME loan can be used for any kind of business requirement.

What do you need to qualify for MSME loans?

  • A proper business plan:

    The most important thing you need to have a proper business plan is to qualify for any MSME loan.
  • A Registered Business:

    Business registration is necessary to qualify for any government scheme or any other business loan.
  • Profit and Loss Statement:

    You will be asked for a P&L statement of your business.
  • Last year's ITR filing for your business:

    The ITR documents show your taxes and are scrutinized by the lenders to know whether you have paid all your taxes or not.
  • A good credit history:

    This shows the history of all your past borrowings. So, if you have a good repayment history, you can easily qualify for this loan.
  • Certificates from all authorized bodies:

    GST and other registration for business provide compliance checks to your business.
  • Your Permanent Address Proof:

    It is mandatory to submit while availing of any type of loan.
  • Collateral documents (if applicable):

    If you are giving collateral against your loan, then you need to submit documents regarding it.
  • Bank details:

    Lenders ask for bank details to know your income and expenses. There should be a realistic projection of the business.

Objective of MSME

- To acquire a piece of land or a factory or a plant or to build on that land.

- For procurement of machinery and laboratory and testing resources, furniture and other critical fittings are required for the smooth functioning of the plant.

- To meet the working capital requirements such as inventories, raw materials and stocks which are in progress.

- When waiting to receive payment from a party but need to pay for the continued supply of goods/services to creditors.

- For business marketing and advertising.

- Expanding business or launching a new suite of products.

- In addition to the above, funds are required for any other type of assistance not mentioned above, but necessary for the functioning of the business.

Eligibility criteria

-To qualify for an MSME loan one must have a well-structured business plan and should be able to enlist the challenges, strategies, and market options before applying for an MSME loan.

-Business Registration:Whether a business is well established or a new startup, it needs to be registered to avail of any benefits or subsidies from the schemes provided by the Government of India.

-Profit and Loss Statement:P&L is required to ascertain how well the business is doing.

-1 Year ITR:Income Tax Return of last 1 year to check if you have paid all your taxes on time.

-Credit History:Lenders would want to check the loan repayment history of borrowers for an earlier loan. A good credit history ensures high eligibility potential.

-The addition of a co-borrower will enhance the eligibility of the application.

-If security or collateral has been provided for availing of the loan, all necessary documents shall be submitted to the bank at the time of application.

-Bank statement for the last 6-12 months to track and validate the borrower's account transactions.

-The business needs to display a realistic projection.

Documents Required for MSME Loan

MSME loans are collateral-free in most cases, however, collateral may be required depending on the situation and the specific requirements of the loan. The following documents are required for a security free loan.

-KYC Documents required: Like Aadhar Card or PAN Card, Valid Indian Passport or Voter ID Card/Driving License, etc.

-Address Proof: Utility Bill, Aadhar Card or Voter ID Card, Valid Indian Passport, Domicile Certificate.

-Financial Documents: Bank Account Statement, Income Tax Return, GST Return and Profit & Loss Statement for the last 6 months.

-Required Business Ownership: Required Registration documents of the business, property, and agreement papers, if applicable.

Also, the age of the business owner should be less than 65 years at the time of loan maturity and should be running the business for the last 3 years. However, some of these criteria may not be the same for all lenders and some may even be willing to negotiate a bit depending on a lot of factors and the final loan terms and conditions.

Features of MSME Loans

Collateral free loans: Loans up to Rs 50 lakh are generally available for businesses without collateral.

Quick Processing: Processing a loan application can be completed within 24 hours and the amount should be disbursed almost instantly.

Flexibility: MSME loans come with convenient EMI options as one must pay interest only on the amount that they have withdrawn from loan sanction and borrowers can withdraw as much as they want as per their working capital needs or other business expenses. They have the option to pay only the interest amount for a fixed period and then start paying the principal as per their profitability.

Documentation: Documentation and paperwork required are very simple.

Pre-approved loan offers: Businesses also have the option of availing of pre-approved loan offers based on the business profitability, vintage and the area of the business.

Apart from the above facilities, borrowers can also track and change their loans through the online account management option, where everything can be done almost instantly and online. MSME loans have a much longer tenure option even in situations where the business is in the growth stage.


The benefits of the MSME loans make them an ideal choice for start-up business owners. You can anytime avail of these loans and use them to meet your various business requirements, such as expanding your office space, buying inventory and raw materials, upgrading your business equipment or infrastructure, etc.

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