MSME Loan for new business aims to create affordable access to funding for small businesses to grow, expand, create wealth and put people to work. The MSME loan scheme attracts interest rates per annum and is available to new and existing business owners.
MSME Loan for New Business
MSME Loan for New Business or Enterprise is a type of credit facility in the form of a term loan (short-term/intermediate-term/long-term), working capital loan, overdraft, cash credit, letter of credit, bill discounting, and other funding products.
Numerous financial institutions offer micro, Small, and Medium Enterprise (MSME) loans to individuals, self-employed professionals, MSMEs, business owners, startups, sole proprietorships, partnerships, limited liability partnerships, and other entities engaged in money earning and business activities along with serving the Services, Manufacturing, and Trading sectors.
MSME loans for new business can be used for business expansion, starting a new business, meeting day-to-day business requirements, enhancing cash flow, purchasing raw materials, goods, or stock, buying or upgrading equipment/machinery, paying off rent/salary, hiring, and training staff, etc.
Further, let’s discuss business loan interest rates offered by leading banks/NBFCs, along with MSME loan features, eligibility criteria, fees & charges, and much more.
MSME Loan for New Business Features
|Interest Rate||Depending on the applicant’s profile and business requirements|
|Loan Amount||No Minimum Limit to borrowing & Maximum|
|Repayment Tenure||From 12 months to 5 years, may exceed, as per the business requirements|
|Collateral/Security||Not required for unsecured business loans|
|Processing Fee||Nil to 4% of the sanctioned loan amount|
|Foreclosure Charges||From Nil to 5% of the outstanding principal amount|
|Part-payment Charges||From Nil to 4% of the outstanding principal amount|
|Subsidy||Offered by selected financial Institutions|
|Credit Facilities||Working Capital Loan, Bill discounting, Overdraft, Term Loan, Cash Credit, Letter of Credit, Bill of Purchase, Merchant Cash Advance, Loans under Govt. Schemes, etc.|
Eligible Entities that can apply for MSME loans:
- Individuals, MSMEs, business owners, women entrepreneurs, self-employed professionals, and people falling under SC/ST/OBC category
- Private or Public Limited Companies, Sole Proprietorships, Partnership Firms, and Limited Liability Partnerships engaged only in the trading, services, and manufacturing sectors
- Duly filled Application form with passport-sized photographs
- KYC documents of applicant and co-applicants that include Passport, Aadhar card, Voter’s ID card, Driving License, PAN Card, and Utility Bills (Telephone, Electricity Bills)
- Business Address and Vintage Proofs
- Last 6 months’ bank statement along with bank details
- Business Establishment Certificate or Incorporation Letter
- Proof of belonging to SC/ST or OBC category, if applicable
- Any other document required by the bank/NBFC
Is MSME Loan with or without Collateral/Security
MSME loans are both secured and unsecured business loans, however, most lenders offer unsecured business loans that are termed collateral-free loans. In the case of collateral-free loans, borrowers are not required to submit any collateral/security with the bank/NBFC or any financial institution.
MSME loans come with various features and benefits as mentioned below:
- Collateral-free MSME/Business loans (Unsecured business loans)
- Collateral-free business loans are usually short-term loans that can be repaid within a tenure of 12 months and the maximum can exceed up to 5 years
- Financial institutions, such as Private and Public Sector Banks, Non-Banking Financial Companies (NBFCs), Regional Rural Banks (RRBs), Small Finance Banks (SFBs), and Micro Finance Institutions (MFIs) offer MSME loans ta competitive interest rates
- The loan amount offered shall depend on the applicant’s profile & credit score, creditworthiness, repayment capability, and financial stability
The MSME/SME loan interest rates offered by various private and public sector banks, Non-banking Financial Companies (NBFCs), Small Finance Banks (SFBs), Regional Rural Banks (RRBs), and Micro Finance Institutions (MFIs) are based on various factors, such as loan amount, repayment tenure, business annual turnover, company’s credit rating, nature/ tenure/ volume of business, and applicant’s income, credit score, financial history, creditworthiness, and repayment capability.