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What are the eligibility criteria for MSME loan?

Posted Date: 27-01-2021 Posted By: user

What is an MSME (Micro, Small, and Medium Enterprises) loan? As the name suggests, it is a loan offered to small businesses or startups.

Since the objective of the loan is to promote new businesses, the payment terms are quite flexible. The repayment tenure changes from the case to case basis. Despite stringent measures, NPA in india is showing an increasing trend. Hence, financial institutes are keen to scrutinize the applications thoroughly.

To support the already stressed MSME after Covid-19 situation, the government has declared credit guarantee of 3 lac crores. It is going to bring a significant improvement in the situation.

The scheme will fund MSME and interested MUDRA loan borrowers with this money.

Under this scheme, the National Credit Guarantee Trustee Company Limited (NCGTC) will offer a 100% guarantee coverage for another 4 lakh crore to eligible loan seekers. The guarantee will be given in the form of GECL Facility (Guaranteed Emergency Credit Line).

On 1st August, the government widened the scope of this 3 Trillian scheme by making the upper ceiling of loan outstanding double. It also included loans given to professionals such as chartered accountants, lawyers, and doctors under its ambit.

The interest rates are offered based on the amount borrowed. It also depends on the profile of the applicant and the payment history.

The loan amount is sanctioned by banks and NBFCs after validating the eligibility criteria. The loans are unsecured loans.

As per the definition given by the Reserve Bank of India, MSME loans are loans given to business enterprises to offer support for finance, infrastructure, and other areas.

As mentioned earlier, the loan amount is sanctioned only if the enterprise fulfills loan eligibility criteria. It is important to know about the criteria in detail. Strict adherence to the process reduces the unnecessary burden of npa management later.

Also, there more than 200 thousand MSMEs, which have either NPA account or stressed accounts. To help such enterprises, the government has kept aside a reserve of another 20 thousand crores as subordinated debts.

It is guaranteed that all these steps will help MSME to overcome the situation and  come out of NPA condition.

MSME loan eligibility criteria

Financial institutions and banks offer easy-to-meet MSME loan eligibility criteria to the borrowers. The loan induces additional capital to the business and gives it a boost. The loan can help entrepreneurs in meeting the big-ticket requirement to improve and scale-up the business.

The fund can be used in several ways:

  • For office innovation
  • To improve cash flow
  • To procure inventory
  • For technology upgrade
  • Leasing new premises
  • Raw material purchase

To minimize the possibility of npa financial services need a long list of documents while processing the loan.

Eligibility Criteria

The loan can be given to the following categories:

  • SEP (Self Employed Professionals): Doctors, CA, CS, architects, and so on.
  • SENP (Self Employed Non-professionals): Retailers, manufacturers, proprietors, traders, and so on.
  • Entities: Private limited companies, closely-held limited companies, partnerships, limited liability partnerships, and so on.

The applicant should be an Indian resident between 25 and 66 years. The business should be in operations for three or more years.

Documents required

  • Application form duly filled
  • Valid identity proof: Passport, driving license, PAN card, Voter card
  • Valid proof of residence: Passport, lease agreement, electricity bill, telephone bill, sales tax certificate, ration card, trade license
  • Age proof: Passport, voter cars, PAN card
  • Bank statement of one year
  • Registration proof of the business
  • Company PAN Card
  • Partnership deed
  • P&L and Balance Sheet of the last two years

Sales tax and municipal tax document