How Do I Become Eligible for an MSME Business Loan?

Micro, small, and medium enterprises (MSMEs) are the backbone of any economy. They play a vital role in its development. MSMEs account for over 8% of India’s GDP. Plus, they contribute 45% of the manufacturing output and 40% of exports. MSME loans, or startup business loans are credit products that banks and other financial institutions offer to small businesses and entrepreneurs. These loans help businesses with resources and collateral access. An MSME business loan helps provide businesses with the capital they need to grow and expand their operations.

There are a variety of MSME loans available. It includes term loans, working capital loans, equipment loans, and more. Each type of loan has its own specific eligibility criteria and repayment terms. MSME business loan is an important source of financing for small businesses in India. It provides the capital to invest in new equipment, expand operations, and hire new employees. These startup business loans are also typically cheaper and easier to obtain than traditional bank loans. 

If you are a small business owner in India, an MSME loan may be right for you. But how do you become eligible for it? 

What Are the Eligibility Criteria for an MSME Business Loan?

To apply for an MSME business loan as an individual or a company, you must fulfill the following eligibility criteria:

• You must be at least 22 years old when you apply for the MSME business loan.
  • You must be at most 65 years old at the time of the loan’s maturity. 
• A private company or sole proprietor can also apply for startup business loans.
• An MSME business loan can also be given to a private company in the trade, service, or manufacturing sectors.
• The applicant must have been engaged with the concerned business for at least 3 years or have at least 5 years of experience in the same.
• The business should generate a basic income of a minimum of INR 2 lakhs a year.
• Additionally, the business should have a turnover of INR 10 lakhs a year. There should be profits for at least 2 years.
• It should also be registered as an MSME on the Udyam Portal, and it must have an MSME registration certificate.

What Are the Qualifications for an MSME Business Loan?

Every MSME or startup must have a set limit for investment and turnover thresholds. It will ensure their eligibility when applying for the MSME business loan. 

Micro-level business or startup

These businesses must have an investment of less than INR 1 crore and a turnover of less than INR 5 crore.

Small-level enterprises

Such businesses must have less than INR 10 crore worth of investment, and their turnover should be below INR 50 crore.

Medium-level business

 These enterprises must have a total investment below INR 20 crore and a turnover below INR 100 crore.

Which Documents are Required to Apply for Startup Business Loans?

Here are some documents that you will need when applying for an MSME business loan. Check out the list below:

• The PAN card of the applicant or the company applying for the loan.
• Proof of identity, such as an Aadhaar card, a voter’s ID card, etc. 
• Valid and current proof of address of the applicant. It includes a ration card, rental agreement, etc. 
• The proof of business address. It includes rental or lease agreements and utility bills.
• Form 16 along with bank and income statements.
• Tax documents such as the company’s income tax returns and sales returns. They must be from the last 2 years. 
• Audited financial statements of the company for proof. They should be from the last 2 years.

What Are Some of the Features of MSME Business Loans?

Certain features of startup business loans make them a preferable loan option for businesses. These include:

• Accessibility

An MSME loan is easy to obtain. The related application process is hassle-free. The individual only requires a few documents. Plus, the loan amount also has a quick disbursal time. It is helpful in times of need.

• Low rates of interest

An MSME business loan has a low interest rate. It is popular among small businesses and individuals. 

• No need for collateral

MSME loans are collateral-free. They do not require any security. Therefore, these loans help individuals and small businesses. They can boost their productivity. 

• Flexibility

Businesses fulfill their short-term requirements with MSME loans. There is no long-term commitment to these options. So, these loans are very flexible. 

• Safety

Government schemes and programs support MSME business loans.This makes them easier to obtain. 

The Advantages of a MSME Business Loan

An MSME business loan is an ideal financial product. It is mostly suitable for businesses and individuals. Some of its benefits include:

• The loans are good for many purposes. It includes working capital, machinery, equipment, and vehicle purchases.
• These loans are mostly collateral-free, making them very safe.
• Businesses can get quick approval and disbursal of the loan amount.
• The interest rate on MSME business loans is usually lower than that of personal or unsecured business loans.
• The list of documents required to apply for startup business loans is quite modest.
• An MSME business loan also has an extended tenure. It ranges between 1 and 5 years.

Final Takeaway

Funding is important if you want to start a new business. Similarly, if you want to expand your existing business, you will need more funds. There are many different funding options available for you in the market. However, if you are a small business, you should try to look for an MSME Business Loan. These loans help small business owners get the funding they need to grow their businesses. These loans also minimize red tape, which is common with other loan options. If you are looking for a startup business loan or an MSME business loan, visit Piramal Finance to find the right loan for you. At Piramal Finance, you will find authentic and personalized information on financial products and services, including personal loans and financial calculators.