MSME loans are financial products designed for micro, small, and medium-sized enterprises to fund their business needs, such as expansion, purchasing equipment, or managing working capital. The content on MSME loans typically covers their types (e.g., term loans, working capital loans, composite loans), eligibility criteria, benefits like government schemes and flexible repayment options, and the application process. These loans are offered by various financial institutions like banks and NBFCs and can be secured or unsecured. 

Types of MSME loans

• Term Loan: A fixed amount of money for a fixed period (1 to 25 years or more) used for long-term investments like buying equipment or expanding operations.
• Working Capital Loan: A short-term loan for day-to-day business operations, such as inventory purchase, with a tenure of less than one year. Common examples include cash credit, overdraft, and bill discounting.
• Composite Loan: A single credit facility that can be used for both term loan and working capital requirements, up to a limit of ₹1 crore.
• Government Scheme Loans: Loans provided under government initiatives like MUDRA (up to ₹10 lakh) or CGTMSE, which often provide collateral-free options with government backing. 

Key features and benefits

• Flexibility: A wide range of loans and tenors are available to suit specific business needs, and overdraft facilities offer flexibility in managing cash flow.
• Government support: Many loans are backed by government schemes, which can offer benefits like interest subsidies, moratorium periods, or make collateral-free options available.
• Growth-oriented: These loans provide capital for business expansion, technology upgrades, and managing daily operations, helping MSMEs scale and compete in the market.
• Streamlined process: Many lenders offer hassle-free application and disbursal processes with attractive interest rates based on the applicant's credit profile. 

Eligibility and application

• Eligibility: Typically determined based on the business's status as a micro, small, or medium enterprise, with criteria based on investment and turnover thresholds. A minimum CIBIL score of 595 is often considered for loan applications.
• Application: The application process generally involves a straightforward assessment by the lender. You can apply through various financial institutions including banks, Non-Banking Financial Companies (NBFCs), and online platforms. 

MSME loan schemes help micro, small, and medium enterprises access affordable credit for expansion, working capital, and technology upgrades. With MSME loan interest rates starting from 4.5% p.a., these loans are offered by banks, NBFCs, and government schemes to boost entrepreneurship and employment.

Key Highlights:
Loan Amount: From Rs. 2,00,000 up to Rs. 5 crore (scheme dependent).
Collateral: Many schemes are collateral-free under CGTMSE.
Tenure: 1 year to 25 years depending on loan type.
Sectors Covered: Manufacturing, trading, and services.
Processing Time: As fast as 59 minutes under “MSME Loan in 59 Minutes” scheme.

An MSME loan is a credit facility that banks and Non-Banking Financial Companies (NBFCs) provide to small and medium-scale businesses. They offer MSME loans with limited or no collateral at reasonable interest rates. Certain government loan schemes also provide loans to MSMEs at a lower interest rate for various purposes, such as purchasing machinery, expanding businesses, upgrading technology, etc.

An MSME loan for a new business is ideal for running the MSME and improving its financial status by helping them purchase advanced machinery, equipment, stock, paying salaries to employees, etc. It can also help to grow and enlarge MSMEs.

Interest rates depend on factors like loan amount, repayment tenure, business type, creditworthiness, and repayment ability. The MSME loan interest rates of different banks and NBFCs are provided below:

Entrepreneurs can apply for MSME loans in two ways: online and offline. The steps to apply for an MSME loan online are as follows:

Step 1: Visit the website of the bank/lender and select the MSME loan scheme and click on the ‘Apply’ button.

Step 2: Fill out the application form and submit it.

Step 3: A representative of the bank/lender will contact the applicant to verify the loan requirements.

Step 4: The representative will ask to submit the required documents. 

Step 5: The loan request will be approved after document verification. 

Step 6: The lender will send an agreement to the applicant to complete the process. 

Step 7: The loan amount will be credited to the applicant’s account within 48 hours of signing the agreement.

An entrepreneur can also visit the nearest bank or financial institution’s branch and request a loan application form. Applicants need to submit the application and required documents to the branch. The bank/financial institution will approve the loan after verifying the documents.

Given are the eligibility criteria for MSME loan schemes:

• All MSMEs engaged in the trading, manufacturing and service sectors.
• The credit score must be 750 or above.
• A business must have a minimum of Rs.2 lakhs income per year, and their minimum turnover should be around Rs.10 lakhs per year.
• Businesses must have a good repayment history with financial stability.
• Businesses should not have any previous loan default with a financial institution.
• The minimum age of the applicant or authorised signatory of a business to take the loan must be 21 years, and the maximum is 65 years.
• The applicant or authorised signatory must have worked in the enterprise or organisation for a minimum of three years and have a minimum of five years of experience in the business field.
• Individuals, business owners and MSMEs who have established the following type of business engaged in the services, trading and manufacturing sectors can apply for MSME loans:
  • Private limited companies
  • Public limited companies 
  • Sole proprietorships 
  • Partnership firms
  • Limited Liability Partnerships (LLPs)

To apply under any MSME loan scheme, applicants must provide valid documents to establish their business identity, financial credibility, and repayment ability. The commonly required documents for MSME loans are:

• Aadhaar card
• PAN card
• Voter ID
• Passport
• Driving Licence of the business owner/partners/directors.

• Utility bills
• Rental/lease agreement
• Property documents
• Passport showing the current business or residential address

• GST registration certificate
• Udyam Registration (Udyog Aadhaar)
• Partnership deed
• Memorandum of association (MOA)
• Articles of association (AOA)
• Shop act licence

• Last 6–12 months’ bank account statements
• Income tax returns (ITR)
• Audited balance sheet
• Profit & loss statement

• Expansion details
• Purchase of machinery
• Working capital requirement

Passport-size photographs of the applicant/partners

• Quotation of machinery/equipment to be purchased
• Project reports
• Security/collateral documents

Banks and NBFCs may request additional documents depending on the type of MSME loan and borrower profile. Submitting accurate documents ensures faster approval and smoother loan disbursal.

Here are the various types of MSME loans:

Working capital loans are short-term loans which helps a business meet its daily cash needs and operational expenses. These loans are offered by banks and various financial institutions.

Term loans are for long-term investments, such as capital expansion, capital expenditure, or purchasing fixed assets. MSMEs can apply for short-term loans by banks and financial institutions.

Several MSME loan schemes are available in India to meet different business needs, from working capital to expansion and technology upgrades. Below are some of the most popular government-backed and institutional loan options:

The Pradhan Mantri Mudra Yojana (PMMY) offers MUDRA loans up to Rs. 20 lakh to non-corporate, non-farm small or micro-enterprises. These loans are provided through Commercial Banks, Small Finance Banks, MFIs, and NBFCs, with the option to apply online via the JanSamarth portal. 

PMMY offers four schemes: ‘Shishu’, ‘Kishore’, ‘Tarun’ and ‘Tarun Plus’. ‘Shishu’ offers loans up to Rs25,00,000. ‘Kishor’ provides loans above Rs.2,00,000 up to Rs.35 lakhs. ‘Tarun’ provides loans above Rs.5 lakhs up to Rs. 50 lakhs. ‘Tarun Plus’ offers loans above Rs. 10 lakhs up to Rs. 75 lakhs.

The Prime Minister’s Employment Generation Programme (PMEGP) is a credit-linked subsidy programme for the establishment of micro-enterprises in the non-farm sector to create self-employment opportunities. This scheme only considers new projects for sanction. Eligible individuals can apply for this scheme grant through

The maximum cost of the project or unit admissible in the manufacturing sector is Rs.25 lakhs and in the business or service sector is Rs.10 lakhs for assistance under this scheme. Under this scheme, a credit subsidiary of 15% to 25% is provided for project or unit of Rs. 50 lakh in the in manufacturing sector and Rs. 20 lakh in the business or service sector.

The Ministry of MSME and the Small Industries Development Bank of India (SIDBI) jointly established the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) to implement a credit guarantee scheme for MSMEs. 

The guarantee cover available under the scheme is to the extent of 75%/ 80%/85% or 90% of the sanctioned amount of the credit facility. For micro-enterprises up to 5 lakhs, the extent of guarantee cover is 85%. The eligible institutions can apply for the credit guarantee scheme from the 

The Interest Subsidy Eligibility Certificate (ISEC) Scheme was introduced for funding khadi programmes undertaken by khadi institutions. Under this scheme, credit at a concessional interest rate of 4.5% p.a. for working capital of the khadi institutions. 

The difference between the 4% and actual lending rate is paid by the Central Government through the KVIC to the lending banks. The khadi institutions can apply for this scheme to the financing bank along with the ISEC certificate issued by the KVIC.

The Small Industries Development Bank of India (SIDBI) offers various MSME loans, such as machinery loans, green finance loans, project loans and working capital loans. These loans help MSMEs to purchase plant and machinery, executing projects or providing energy services, purchase of land and construction of factory building or provide working capital assistance for working capital requirements. 

The SIDBI MSME loans start from Rs.3 crore to Rs.50 crore with an attractive interest rates. The eligible MSMEs can apply for these loans from the 

The Government of India offers MSME Business Loan for Startups in 59 Minutes. The processing of these loans is completely online and are processed within one hour. Under this, MSMEs can obtain term loans, working capital loans and mudra loans of upto Rs.5 crore. Eligible MSMEs can apply for this loan through the 

MSME loan schemes provide the following benefits for MSMEs:

• To start a new business or expand the existing business.
• For purchasing machinery and plants, such as lab or testing equipment, furniture, electrical appliances, etc.
• To construct building or acquisition of land/premises.
• For launching a new business products.
• To meet working capital requirements like stocking up inventory, paying salaries, purchase of goods and raw materials, etc.
• For marketing and advertising purposes.
• Helps prevent delays in business activities.

The MSME loan scheme framework in India provides entrepreneurs with multiple funding options, from Mudra loans for micro businesses to large project loans under SIDBI. With competitive MSME loan interest rates, these schemes ensure access to affordable credit for working capital, expansion, and technology upgrades.