Wealth Guide: MSME loans, types, eligibility, how to avail and more - What small business owners should know

Setting up a business could be demanding in terms of initial finance. Well-structured financial planning can assure you of a constant inflow of revenue. Even after setting up, the basic requirements would be to replenish stock, create partnerships with retail businesses and expand the business. 

Executing the aforementioned properly would entail having additional funds in hand. And this is why there is a provision to apply for business loans. The objective of business loans is to help such business owners to render their uninterrupted and trouble-free service between the manufacturers of goods or commodities and consumers. And to take care of this aspect, business loans provide the perfect solution in terms of hassle-free funding rendered at a reasonable rate of interest. Tanesh Gagnani, Executive Director, Akasa Finance Limited (earlier known as Pooja Finelease), shares his knowledge on  MSME loans and advises on how to repay them.

Tanesh Gagnani says, "One of the vital changes that was brought into by Modi government is that the wholesale trade has been put under the Micro Small and Medium Enterprises (MSMEs) category. As a consequence, the traders can avail the benefits of priority sector lending. A person or enterprise desiring to establish their wholesale business can seek financial assistance and the eligibility requirements corresponding to each loan mentioned below."

MSME Business loans - 59 minutes public sector bank loan scheme

"One of the most visionary policies introduced for lending capital to the MSME sector enterprises is the 59 minutes Public sector bank loan scheme. The financial assistance required to set up a wholesale business can be obtained from this scheme through reputed public sector banks. Any MSME can apply for loans. It is imperative that we understand which kind of entities qualify to fall under the category of MSME. A business having a capital of 1 crore and a turnover of 5 crores or less is a micro-business. A business having a capital of 10 crores or less and a turnover of 50 crores or less is a small business. A business having a capital of 50 crores or less and turnover of 250 crores or less is a medium business," Gagnani explained.

The basic requirements are:

- Borrower must be Indian

- Business vintage may vary from bank to bank - Generally, it is 1 year and go up till 3 years

- A good CIBIL score i.e. 685 or higher

"Any trader wanting to set up a new wholesale business can avail of the MSME loan if they fall under any one of the classes discussed above. Loan amount ranging from Rs. 10 Lac to Rs. 5 crores can be extended under the MSME loan scheme and it does not require collateral. The loan gets sanctioned in less than 60 minutes and the interest would begin from 8.5% and might increase depending on the magnitude and nature of the business undertaken by the trader. Filing of last year’s GST returns are imperative for individuals who want to start their new business," he added.

MUDRA loans

Gagnani explains, "The government of India rolled out the MUDRA loan scheme in order to offer loan amount of up to Rs. 10 Lacs for MSMEs and individuals who want to commence their business. The peculiar feature about a loan under MUDRA is that it does not require collateral security. Now that the government has included wholesale traders under the MSMEs, it would be viable for a potential wholesale business owner to avail the loan. Another advantage of MUDRA loans is that they offer low-interest rates coupled with lower processing fees as well. The tenure to repay could be from 12 months to 5 years."

"There are three loan categories under the MUDRA scheme:

Shishu Loans – up to Rs. 50,000

Kishor Loans – Rs. 50,000 to 5,00,000

Tarun Loans – Rs. 5,00,000 to 10,00,000

Businesses covered under the purview of the proprietary firm, partnership firm, Private company, Public Company and other legal entities can apply for loan from MUDRA loan scheme."

Term loans

"These are the loans provided by banks to business entities wherein certain terms and a repayment schedule are specified. Such loans come with a number of features and facilities such as cash credit or overdraft or export credit and non-fund-based facilities for wholesale business owners who have been in the market for one year or more. The main purpose of such loans could be to purchase commercial assets and expand the business. Therefore, such loans are not necessarily suited for someone who wants to open a new business but for the ones who want to grow their existing business," he advised. 

"The requirements may vary from bank to bank. For instance: ICICI bank provides business loans for new entities that are fall are either:

-Sole Proprietorship Firms 

-Partnership Firms 

-Private Limited Companies 

-Public Limited Companies

"The bank assesses each business profile, previous track record, financial history, amount of loan and its tenure before determining the interest rate. To avail their loan facility the bank accepts some particular kinds of collateral such as residential or commercial or industrial property or liquid securities," he concluded.

Recently, Nasscom Centre of Excellence for the internet of things (IoT) and artificial intelligence (AI) CEO Sanjeev Malhotra said that the number of start-ups in the country is increasing significantly with 10 per cent being added every year.

"The number of start-ups is growing significantly in the country with 10 per cent being added every year. There has been significant growth in the number of companies and funding organisations which are attributing to this cause," he said.

India has the third-largest ecosystem for start-ups in the world, he said.

The Economic Survey 2021-22 had also mentioned that the number of such firms has grown remarkably over the last six years.

(Disclaimer: The views/suggestions/advice expressed here in this article are solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)