Micro, Small and Medium Enterprises (MSMEs) are the backbone of the Indian economy. They contribute to over 30% of India’s GDP and constitute almost 90% of the country’s businesses. MSMEs are integral to the growth of the Indian economy, yet they often face challenges in accessing the capital required for their growth.
Micro enterprises are those with investments up to Rs.1 crore and turnover of up to Rs.5 crore. Small enterprises have investments of up to Rs.10 crore and a turnover of up to Rs.50 crore while medium enterprises comprise of businesses with investments up to Rs.20 crore and a turnover up to Rs.100 crore.
To address this, the Government of India has launched several initiatives aimed at providing easy access to finance for MSMEs. One such initiative is MSME loans.
What are MSME loans?
MSME loans are a type of financing specifically designed for small and medium-sized enterprises (SMEs). These loans are designed to provide financial assistance to MSMEs so they can expand their business operations, purchase new equipment or machinery, hire new employees, and more. MSME loans are typically provided by banks and financial institutions at competitive interest rates.
These loans are aimed at providing capital to smaller businesses that may not have access to traditional sources of funding such as banks. This allows them to grow and expand their operations without relying on external sources of finance. MSME loans also aim to promote entrepreneurship and innovation within the MSME sector.
What are the primary benefits of MSME loans?
Easy Access to Finance: One of the biggest advantages of MSME loans is that it provides easy access to finance for businesses. Banks and financial institutions offer these loans at competitive interest rates, which makes them more affordable for MSMEs.
Flexible Repayment Options: MSME loans come with flexible repayment options. This allows businesses to repay the loan amount in easy installments without having to worry about a huge burden on their finances.
Collateral Free: Most MSME loans do not require any collateral. This makes it easier for MSMEs to access the funds they need without having to put up any security.
Tax Benefits: Businesses that avail of MSME loans are eligible for tax benefits. This can help businesses save money on their taxes and use it for other purposes.
Banks providing MSME loans
MSMEs can access loans to grow or set up new enterprises. Interest rates start at 7.65% p.a. Loan amount ranges from Rs. 50,000 and can go up to several crores. It's a great way to obtain financial assistance for businesses.
| Banks | Interest rates |
| Punjab and Sind Bank | 9.95% p.a. onwards |
| Central Bank of India | 11.25% p.a. onwards |
| Oriental Bank of Commerce | 10.70% p.a. onwards |
| State Bank of India | 7.65% p.a. onwards |
| UCO Bank | 8.85% p.a. onwards |
| Indian Bank | 9.75% p.a. onwards |
| United Bank of India | 10.25% - 16.25% p.a. |
Note: The above data has been compiled from BankBazaar
There are certain other banks providing MSME loans whose interest rates may not be fixed. The interest rates may vary based on the bank's discretion, the applicant's profile, and the applicant's business needs.
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The Union Budget 2023 proposed a special focus on the Micro, Small, and Medium Enterprises (MSMEs) sector. A revamped credit guarantee scheme will be implemented from April 1, 2023, with a corpus infusion of 9000 crores to provide MSMEs with more collateral-free credit.
This will allow for an additional two lakh crores of rupees in collateral-free guaranteed credit. Moreover, credit costs will be reduced by about 1%. This scheme is expected to bring relief to MSMEs as well as increase job opportunities in the sector.
