MSME Loan Schemes: Features & Benefits

MSME loan schemes are offered to Micro, Small and Medium Enterprises to help them sustain growth and expand the business. When a loan is availed by an MSME sector, it is called MSME loan. The loans for MSME are offered by different lenders in the market. It goes without saying that it is important for the loan lenders to verify if the borrower will be able to repay the loan amount or not. The eligibility criteria for MSME loan is different for all the lenders. They all have different standards on which they verify the creditworthiness of the borrower. Nevertheless, the following is a generic list of standards on which they judge the borrower:

  • ITR of more than 2.5 lakhs in the previous year
  • Business turnover of more than 10 lakhs in the previous year
  • The business place should be owned by the business owner
  • Business place and the house should be separate

The documents required for business loans are also different for every lender. They all require documents to verify the personal and business information provided by the businessmen in the loan application form. The borrower is suggested to apply for a loan with the lender who offers loans at minimal documentation. The following is a generic list of required documents:

  • PAN
  • Address proof (business place and house)
  • ITR
  • Bank statement

Features & Benefits of MSME Loans

The features and benefits of MSME loan schemes are as follows:

  • Easy Availability: all types of MSME loans are approved and disbursed in comparatively lesser time than the other types of loans. The MSME loan application is processed and approved in as less as just 3 days. All the borrower has to provide is the details of his income and financial history.
  • Financial Flexibility: the MSME loan schemes help the business owner to meet all different needs and expenses of the business. Availing this type of loan scheme helps him to pay his vendors on time, enhance marketing activities, increase inventory, and expand the business. He can also invest in new machinery without upsetting his business budget or cash flow.
  • Get the Required Amount: based on the business turnover and ITR, the loan amount will be sanctioned and disbursed by the lender. The CIBIL score of the businessman is also very important and is considered by every lender.
  • Repayment Tenure: the repayment tenure for MSME loan will vary from one lender to another. The normal tenure offered is 12 months, 18 months, and 24 months. However, if you have availed a long-term loan, the tenure can go up to 60 months.
  • Tax Benefits: under Income Tax Act, 1961, the interest paid on all types of loans is tax exempted.

The loan amount is dependent on various factors including borrower’s credibility, business turnover, and if there are any ongoing loans. The rate of interest for the loan is also dependent on the creditworthiness of the borrower. If the borrower is more credible, he is less risky. Therefore, he is offered low interest rates and vice versa.

SD Asia Desk