All you Need to Know About MSME Loan

Tanya Verma

12 May, 2025

MSME Loan is a type of loan provided to owner of Micro, Small or Medium Enterprises to help them improve the financial conditions of the existing businesses and to encourage starting new businesses.

What is MSME?

MSME full form is Micro, Small and Medium Enterprises i.e. such enterprises that execute their business activities in a very small scale. As per the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 {MSMED} the definition of the Micro, Small and Medium Enterprises are classified in two classes. These are namely;

• Manufacturing enterprises: The enterprises or businesses who are engaged in manufacturing or production of products which can be used in any industry as defined in Schedule I of the Industries {Development and Regulation} Act, 1951. Also, firms employing plant and machinery ultimately adding any value to the final product having distinctive use, character or name are defined as manufacturing enterprises. Such enterprises are defined in terms of investment in plant and machinery.
• Service enterprises: The firms or organizations involved in providing services are defined as Service enterprises and they are defined in terms of investment in equipments.

What is MSME Loan?

MSME stands for Micro, Small and Medium Enterprises that are generally run by small entrepreneurs by investing very small amounts. They are primarily involved in manufacturing/production activities or providing services to various other services. Majorly, MSMEs are home based small businesses manufacturing items for general use. However, sometimes the medium scale businesses manufacture bigger equipments or items than the small or micro enterprises.

MSME loan is a type of loan given to businesses that come under the category of micro, small or medium enterprises. NBFCs, banks and other financial institutions offer MSME loan to such type of businesses. Also, MSME loans are given by government with the help of various schemes. Some of the government schemes that come under MSME loan are Mudra loan, CGTMSE, PMEGP, etc.

Who is Eligible for a MSME Loan?

As you know MSME loan is only available to business owners who own a firm as described by the MSMED Act so it is not a type of loan that is open for all. Your business must meet the eligibility criteria to get the MSME loan. Some of the criteria to be eligible for availing the MSME loan are as below and you should at least fulfill one of the given criteria;

• You should be a Self Employed Professional {SEP} for example allopathic doctors, CS, CA, and architects
• Self Employed Non-Professional {SENP} such as- traders, retailers, manufacturers, proprietors, and service providers
• Business Entities
• Additionally, only Indian resident ranging from the age of 25 and 66 can avail this loan
• Also, entities applying for this loan should be at least 3 years old

How to get MSME Loan?

You can visit your nearest bank, NBFC or any other financial institution according to your preference to get the MSME loan. Just you have to visit your nearest branch/ financial institution and follow the instructions directed by them. Also, follow the interest rates and repayment terms as specified by the bank as every bank and other FIs have different interest rates and repayment terms.

Usually there is a limit on the maximum loan amount but it can go up to Rs. 500 crore according to the needs, scope of business, etc. factors.

Generally, the conditions for getting financial assistance in form of MSME Loan are as follows;

• Technical/equipment viability
• Eligibility criteria
• Promoters contribution
• Capacity to repay loan
• Collateral guarantees/ securities

Interest Rates and Repayment Terms

Every bank and other financial institution have their own terms and conditions regarding interest rates and repayment periods. However, every bank needs to follow the following terms;

• Banks has to provide 40% of the total advances to the micro, small and medium enterprises sector involved in manufacturing activities
• And such manufacturing entities investing in plant and machineries up to Rs. 10 lakhs
• Also, for service enterprises having investment in equipment up to Rs. 4 lakhs

The loan repayment tenure for MSME Loan can range from 36 months to 5 years to and maximum can be up to 15 years.

Takeaway

MSME Loan is a type of loan which any company falling under the category of Micro, Small or Medium enterprises can avail. The benefits of MSME Loan include easier accessibility, in a time like today and because of schemes like MSME Loan in 59 minutes, it is very easy to avail loan for small businesses. Also, you have the full control, the interest rates are comparatively very low, and also there is a short term of commitment.