Financial assistance to small business entrepreneurs, startups, and new businesses can be in the form of MSME (Micro, Small and Medium Enterprises) loans. The eligibility criteria for the MSME business loan differs across lenders.
Often, these loans are unencumbered, meaning they do not require a collateral, which is why they are a risky investment. Nonetheless, some lenders specifically cater to MSMEs and offer special loan packages occasionally.
Though less tedious than other loans for business, the MSME loan process can be a daunting process. The loan amount sanctioned and the applicable interest rate is influenced by the impression you make and your creditworthiness.
Let us look at the procedure to apply for an MSME business loan in India.
Applying for an (Udyam) MSME business loan
Step 1. Visit the national portal for the registration of (Udyam) Micro, Small and Medium Enterprises at https://udyamregistration.gov.in. The registration process is virtual, paperless, free of charge and based on self-declaration.
Step 2. You will have to fill out your information such as your name and your Aadhar number. Finally, click on ‘Validate’ to generate your OTP.
Step 3. Enter the OTP in the dialogue box, and click on ‘Validate’. The MSME loan application form will appear.
Step 4. You will have to fill out the requisite details. Ensure that you do not make any mistakes in filling out the loan application.
Step 5. Click on the ‘Submit’ button, and click on ‘OK’ to reconfirm. You will receive yet another OTP on your Aadhar-linked mobile number.
Step 6. Fill in the OTP and click on ‘Final Submit’ to generate your registration number. Take a screenshot, and/or note down the number somewhere safe and accessible for future reference.
What documents are required to avail the loan?
● Your identity and age proof – Passport, voter’s identity card, PAN card, driving licence.
● Proof of residence – Passport, telephone and electricity bills, lease agreement, ration card, trade license, and sales tax certificate.
● The loan application form.
● The recent bank statement of the preceding 12 months.
● Income proof of the entrepreneur.
● Proof of registration of business.
● Sales Tax and Municipal Tax documents
● Copy of the entrepreneur’s PAN card.
● Copy of the Partnership Deed (if applicable)
● Copy of the company PAN card (if applicable)
MSMEs are part of the future of the Indian economy. The Indian government has nurtured an accommodative disposition towards Micro, Small and Medium Enterprises. A notification dated 26th June 2020 attempts to make some positive changes, including expanding the scope of MSME definition.
The overhauled definition has broadened the scope of businesses falling within the meaning of Micro, Small and Medium Enterprises. An enterprise is classified as micro, small or medium depending on “a composite criterion of investment and turnover”.
Word of caution
The MSME loan agreement is a legally enforceable document that is binding upon its signatories. Read the offer document thoroughly to determine your MSME loan eligibility. The business loan EMI calculator can help discern your liability towards repayment of the principal sum, so that you can plan out your finances accordingly.